As filed with the Securities and Exchange Commission on March 1, 1999
Registration No. 33-80784
File No. 811-08484
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 14 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 17 /X/
(Check appropriate box or boxes)
MENTOR INSTITUTIONAL TRUST
(Exact name of registrant as specified in charter)
P.O. Box 1357
Richmond, Virginia 23286
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code (804) 782-3647
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PAUL F. COSTELLO, President
901 East Byrd Street
Richmond, Virginia 23219
(Name and address of agent for service)
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Copy to:
TIMOTHY W. DIGGINS, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on March 1, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
-1-
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If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
THIS POST-EFFECTIVE AMENDMENT RELATES SOLELY TO THE MENTOR U.S. GOVERNMENT
CASH MANAGEMENT PORTFOLIO, THE MENTOR FIXED-INCOME PORTFOLIO, AND THE MENTOR
PERPETUAL INTERNATIONAL PORTFOLIO. NO INFORMATION RELATING TO ANY OTHER SERIES
OF THE REGISTRANT IS AMENDED OR SUPERSEDED HEREBY.
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P R O S P E C T U S March 1, 1999
Y (Institutional) Shares
Mentor Institutional Trust
OFFERING INVESTMENT CHOICES TO QUALIFIED INVESTORS
o MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO
a money market fund seeking as high a rate of current income as Mentor
Investment Advisors, LLC believes is consistent with preservation of
capital and maintenance of liquidity
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC
o MENTOR FIXED-INCOME PORTFOLIO
seeking a high level of long-term total return by investing in a
diversified portfolio of fixed-income securities and income producing
equity securities
ADVISOR: MENTOR INVESTMENT ADVISORS, LLC
o MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
seeking long-term capital appreciation by investing in a diversified
portfolio of equity securities of issuers located outside the United
States
ADVISOR: MENTOR PERPETUAL INVESTMENT ADVISORS, LLC
You can call Mentor Services Company, Inc. at (800) 382-0016 to find out
more about these Portfolios and other mutual funds in the Mentor family.
The prospectus explains what you should know about the Portfolios before
you invest. Please read it carefully.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary Information ................................ 3
Expense Summary .................................... 8
Principal Investment Strategies and Risks .......... 9
Other Investments and Risks ........................ 13
Management ......................................... 16
How the Portfolios Value Their Shares .............. 17
How To Buy Shares .................................. 18
How To Sell Shares ................................. 19
How Distributions Are Made ......................... 20
Taxes .............................................. 20
Financial Highlights ............................... 22
</TABLE>
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SUMMARY INFORMATION
Mentor Institutional Trust (the "Trust") provides investment options
through three separate investment portfolios (the "Portfolios"), with varying
investment objectives and policies.
The following Portfolio summaries describe each Portfolio's investment
objective (or objectives) and principal investment strategies and identify the
principal risks of investing in each Portfolio.
Below each Portfolio's description is a bar chart which provides some
indication of the risks of investing in the Portfolio by showing how the
investment returns of that Portfolio's Class Y (Institutional) shares have
varied in the years since they were first offered. The table following each bar
chart shows how that Portfolio's average annual returns for the last year and
for the life of the Portfolio compared to returns of a comparable index,
generally a broad-based securities market index. Past performance is not
necessarily an indication of future performance.
It is possible to lose money on investments in the Portfolios. An
investment in a Portfolio is not a deposit with a bank and is not insured by the
Federal Deposit Insurance Corporation or any other government agency.
MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO
o INVESTMENT OBJECTIVE. To seek as high a rate of current income as Mentor
Investment Advisors, LLC ("Mentor Advisors") believes is consistent with
preservation of capital and maintenance of liquidity. The Portfolio is a money
market fund.
o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio attempts to maximize
yields, consistent with its investment objective, by portfolio trading and by
buying and selling portfolio investments in anticipation of or in response to
changing economic conditions and conditions and trends in the U.S. Government
securities money markets. The Portfolio may also invest to take advantage of
what Mentor Advisors believes to be temporary yield disparities in the U.S.
Government securities markets. It invests exclusively in U.S. Government
securities and repurchase agreements with respect to U.S. Government securities.
The Portfolio may take advantage of the full range of U.S. Government
securities, including securities supported by the full faith and credit of the
United States, and other securities supported only by the right of the federal
agency or government-sponsored enterprise that issued them to borrow from the
U.S. Treasury, or by the credit of entity that issued them. Short-term U.S.
Government obligations generally are considered among the safest short-term
investments, but as a result, the yields available from such obligations are
generally lower than the yields available from comparable corporate debt
securities.
o PRINCIPAL RISKS. The Portfolio's investments will be affected by general
changes in interest rates resulting in increases or decreases in the values of
the obligations held by the Portfolio. The values of the Portfolio's investments
can be expected to vary inversely to changes in prevailing interest rates.
Withdrawals by shareholders could require the sale of portfolio investments at a
time when such a sale might not otherwise be desirable. AN INVESTMENT IN THIS
PORTFOLIO IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THIS PORTFOLIO SEEKS TO
PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
MONEY BY INVESTING IN THIS PORTFOLIO.
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MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO
[GRAPH]
Calendar Year End Annual Return
1995 6.08%
1996 5.53%
1997 5.60%
1998 5.53%
During the periods shown above, the highest quarterly return was 1.53% for
the quarter ended June 30, 1995 and the lowest was 1.27% for the quarter ended
December 31, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 12/5/94)
- --------------------------------------------------- ----------- ------------------
<S> <C> <C>
U.S. Government Cash Management Portfolio ......... 5.53% 5.68%
</TABLE>
For the most recent 7-day yield for this Portfolio, please call
1-800-382-0016.
MENTOR FIXED-INCOME PORTFOLIO
o INVESTMENT OBJECTIVES. To seek a high level of long-term total return.
Preservation of capital is a secondary objective to the extent consistent with
the Portfolio's primary objective of seeking a high level of long-term total
return.
o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio seeks to maintain
relatively high average credit quality but may vary its maturity. To this end,
it will seek to maintain a dollar-weighted average credit quality of at least A.
Mentor Advisors will adjust the maturity of the Portfolio in response to
changing market conditions. The Portfolio normally invests at least 90% of its
assets (determined at the time of investment) in securities of investment grade
but may invest up to 10% in lower-rated securities known as junk bonds. A
security will be deemed to be of "investment grade" if, at the time of
investment, the security is rated at least Baa3 by Moody's Investors Service,
Inc. or BBB- by Standard & Poor's Ratings Service, or determined by Mentor
Advisors to be of comparable quality. The Portfolio may invest up to 25% of its
assets in foreign securities. The Portfolio may also engage in strategies making
use of interest rate swaps and other interest rate transactions. The Portfolio
invests mainly in U.S. Government securities, corporate bonds, bonds of other
private issuers, mortgage-backed securities, other asset-backed securities, and
income-producing equity securities, such as preferred stocks, convertible
securities, and dividend-paying common stocks.
o PRINCIPAL RISKS.
o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to changes
in interest rates) and to credit risks (the risk that the issuer may become
unable or unwilling to make timely payments of principal and interest). When
interest rates rise, the values of
4
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fixed-income securities held by the Portfolio decline. The longer the maturity
of a security, the more its value will decline when interest rates rise.Although
the Portfolio will only purchase securities which meet its credit guidelines at
the time of purchase, it will not necessarily sell securities which are
downgraded after purchase.
o MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them, and the returns on investments in
such securities will depend on, among other things, the rate at which the
mortgages may be prepaid under various market conditions. "Residual" interests
in which the Portfolio may invest generally represent the right to any excess
cash flow remaining after payments to all other interest-holders in a pool of
mortgages. The values of residuals are extremely sensitive to changes in
interest rates. When interest rates fall, prepayments of mortgages tend to rise,
shortening the average maturity of the portfolio when it is least desirable. In
certain circumstances, there may be little or no excess cash flow payable to
residual holders. Other asset-backed securities are subject to many of the same
risks as mortgage-backed securities.
o LOWER-RATED SECURITIES ("JUNK BONDS"). Securities rated Baa or BBB lack
outstanding investment characteristics and have speculative characteristics and
are subject to greater credit and market risks than higher-rated securities. The
ratings of securities rated below investment grade ("junk bonds") reflect a
greater possibility that adverse changes in the financial condition of the
issuer or in general economic conditions, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. If this were to occur, the values of securities held by the Portfolio
may become more volatile.
o FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among other things, risks related to
political or economic instability, currency exchange and taxation.
o INTEREST RATE TRANSACTIONS. The Portfolio may enter into interest rate
swaps and other interest rate transactions, typically to adjust the
interest-rate sensitivity of the Portfolio. Many of these transactions have the
effect of providing investment leverage. They may result in losses to the
Portfolio if Mentor Advisors' judgement as to prevailing interest rates is wrong
or if these transactions affect the sensitivity of the Portfolio in a manner
different from that expected by Mentor Advisors.
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MENTOR FIXED INCOME PORTFOLIO
[GRAPH]
Calendar Year End Annual Return
1995 19.70%
1996 2.40%
1997 8.06%
1998 7.70%
During the periods shown above, the highest quarterly return was 6.70% for
the quarter ended June 30, 1995, and the lowest was (2.49%) for the quarter
ended December 31, 1996.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 12/6/94)
- ----------------------------------------------- ----------- ------------------
<S> <C> <C>
Fixed-Income Portfolio ........................ 7.70 9.13
Lehman Brothers Aggregate Bond Index* ......... 8.69 9.95
</TABLE>
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* The Lehman Brothers Aggregate Bond Index is commonly used to compare
performance of income-oriented portfolios and is made up of the
Government/Corporate Index, the Mortgage-Backed Securities Index, and the
Asset-Backed Securities Index. Investors cannot invest in the Index.
PERPETUAL INTERNATIONAL PORTFOLIO
o INVESTMENT OBJECTIVE. Long-term capital appreciation.
o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio seeks to invest in
companies, large or small, where earnings are believed to be in a relatively
strong growth trend, or where significant further growth is not anticipated but
where the shares are thought to be undervalued. The Portfolio will normally
invest a substantial portion of its assets in securities of smaller companies
and may at times invest a substantial portion of its assets in issuers located
in emerging markets. In identifying candidates for investment, Mentor Perpetual
considers a variety of factors, including the likelihood of above average
earnings growth, attractive relative valuation, and whether the company has any
proprietary advantages. Mentor Perpetual may also conduct discussions with
management, visit the premises of issuers and analyze industry and market trends
in order to select its investments. The Portfolio's investments will normally
include a diversified portfolio of equity securities of issuers located outside
the United States, such as: common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
common stocks or preferred stocks. The Portfolio may invest to a lesser extent
in debt securities if Mentor Perpetual believes they would help achieve the
Portfolio's objective. When it chooses to invest in debt, the Portfolio seeks to
maintain relatively high average credit quality but may vary its maturity. To
this end, it will only invest in debt securities which are of investment grade.
Mentor Perpetual will adjust the maturity of the Portfolio in response to
changing market conditions.
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o PRINCIPAL RISKS.
o EQUITY SECURITIES. A risk of investing in the Portfolio is the risk that
the value of the equity securities in the portfolio will fall, or will not
appreciate as anticipated by Mentor Perpetual, due to factors that adversely
affect markets in general or particular companies in the portfolio. The
Portfolio is more sensitive to this risk because it may invest a substantial
portion of its assets in smaller companies.
o FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among other things, risks related to
political or economic instability, currency exchange and taxation.
o EMERGING MARKET SECURITIES. Investments in emerging markets are subject
to the same risks applicable to foreign investments generally but to a greater
extent. For example, the securities markets and legal systems in emerging
markets may provide few, or none, of the advantages or protections of markets or
legal systems available in more developed countries. Many of the securities in
which the Portfolio may invest may trade in limited volume and may be illiquid.
Exchanges, if any, on which they trade may not provide all of the conveniences
or protections provided by securities exchanges in more developed markets.
o SMALLER COMPANIES. The Portfolio may invest a substantial portion of its
assets in smaller companies, which tend to be more vulnerable to adverse
developments than larger companies. Smaller companies may have limited product
lines, markets, or financial resources, or may depend on a limited management
group. Their securities may trade infrequently and in limited volumes. As a
result, the prices of these securities may fluctuate more than the prices of
securities of larger, more widely traded companies.
o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to changes
in interest rates) and to credit risks (the risk that the issuer may become
unable or unwilling to make timely payments of principal and interest).
Securities rated Baa or BBB lack outstanding investment characteristics and have
speculative characteristics and are subject to greater credit and market risks
than higher-rated securities. When interest rates rise, the values of
fixed-income securities held by the Portfolio decline. The longer the maturity
of a security, the more its value will decline when interest rates rise.
Although the Portfolio will only purchase securities which meet its credit
guidelines at the time of purchase, it will not necessarily sell securities
which are downgraded after purchase.
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MENTOR PERPETUAL INTERNATIONAL PORTFOLIO -- CLASS Y
[GRAPH]
Calendar Year End Annual Return
1997 10.60%
1998 13.53%
During the periods shown above, the highest quarterly return was 16.89% for
the quarter ended December 31, 1998, and the lowest was (15.02)% for the quarter
ended September 30, 1998.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 5/29/96)
- ---------------------------------------------------------- ----------- ------------------
<S> <C> <C>
Perpetual International Portfolio ........................ 13.53% 9.82%
Morgan Stanley Capital International EAFE Index* ......... 20.33% 9.20%
</TABLE>
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* The Morgan Stanley Capital International EAFE Index is an unmanaged index
composed of approximately 1,119 securities issued by foreign companies listed
on Europe, Australia & Far East (EAFE) stock exchanges. This is a total return
index with gross dividends reinvested. The performance of countries and
unmanaged indexes does not reflect expenses and may not correspond to the
performance of the Portfolio, which is actively managed and incurs expenses.
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in a
Portfolio. Expenses shown are based on expenses incurred in respect of Y
(Institutional) Shares of the Portfolios for the 1998 fiscal year. The Examples
show the cumulative expenses attributable to a hypothetical $10,000 investment
in each Portfolio over specified periods. THE PORTFOLIOS ARE BEING OFFERED TO
INVESTORS PRINCIPALLY THROUGH INVESTMENT ADVISORY ACCOUNTS WITH MENTOR
INVESTMENT ADVISORS, LLC AND ITS AFFILIATES; EXPENSES SHOWN BELOW DO NOT REFLECT
ANY FEES OR EXPENSES ASSOCIATED WITH THOSE ACCOUNTS.
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FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT): None
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
MENTOR U.S. GOVT. MENTOR PERPETUAL
CASH MANAGEMENT MENTOR FIXED- INTERNATIONAL
PORTFOLIO INCOME PORTFOLIO PORTFOLIO
------------------- ------------------ -----------------
<S> <C> <C> <C>
Management Fees ................................... 0.00% 0.00% 1.00%
Other Expenses* ................................... 0.12% 0.10% 0.43%
---- ----
Total Annual Portfolio Operating Expenses ......... 0.12% 0.10% 1.43%
----- ---- ----
Fee waiver and/or expense limitation .............. (0.06)% 0 0
----- ---- ----
Net Expenses* ..................................... 0.06% 0.10% 1.43%
===== ===== =====
</TABLE>
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*The Net Expenses shown above reflect the effect of contractually imposed
expense limitations and/or fee waivers in effect through October 31 1999 on
Total Annual Portfolio Operating Expenses.
EXAMPLES
These Examples are intended to help you compare the cost of investing in
each Portfolio with the cost of investing in other mutual funds.
The Examples assume that you invest $10,000 in Y (Institutional) shares of
the Portfolio indicated for the time periods indicated and then redeem all of
your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year and that each Portfolio's operating
expenses remain the same as the Total Annual Portfolio Operating Expenses (after
expiration of the fee waiver and/or expense limitation, assuming it is not
extended) shown above. Although your actual costs may be higher or lower, based
on these assumptions your costs would be*:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mentor U.S. Government Cash Management Portfolio .......... $ 6 $ 33 $ 62 $ 148
Mentor Fixed-Income Portfolio ............................. 10 32 56 128
Mentor Perpetual International Portfolio .................. 146 452 782 1,713
</TABLE>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
A Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolios' principal
strategies and risks.
MORTGAGE-BACKED SECURITIES AND OTHER ASSET-BACKED SECURITIES (FIXED-INCOME
PORTFOLIO). The Fixed-Income Portfolio may invest in mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including collateralized mortgage obligations. Interest and principal
payments on the mortgages underlying mortgage-backed securities are passed
through to the holders of the mortgage-backed securities.
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Mortgage-backed securities currently offer yields higher than those available
from many other types of fixed-income securities, but because of their
prepayment aspects, their price volatility and yield characteristics will change
based on changes in prepayment rates. Generally, prepayment rates increase if
interest rates fall and decrease if interest rates rise. For many types of
mortgage-backed securities, this can result in unfavorable changes in price and
yield characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects, the
Portfolio's mortgage-backed securities have less potential for capital
appreciation during periods of declining interest rates than other fixed-income
securities of comparable maturities, although such obligations may have a
comparable or greater risk of decline in market value during periods of rising
interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on the securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgaged-backed
securities, especially during periods of declining interest rates. Similarly,
during periods of rising interest rates, a reduction in the rate of prepayments
may significantly lengthen the effective durations of such securities.
The Fixed-Income Portfolio may also invest in other types of
mortgage-related securities, including any securities that directly or
indirectly represent a participation in, or are secured by and payable from,
mortgage loans or real property, including collateralized mortgage obligation
"residual" interests. Residual interests are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans. The cash flow generated by the
mortgage assets underlying a series of mortgage securities is applied first to
make required payments of principal of and interest on the mortgage securities
and second to pay the related administrative expenses of the issuer. The
residual generally represents the right to any excess cash flow remaining after
making the foregoing payments. Each payment of such excess cash flow to a holder
of the related residual represents income and/or a return of capital. The amount
of residual cash flow resulting from a series of mortgage securities will depend
on, among other things, the characteristics of the mortgage assets, the coupon
rate of each class of the mortgage securities, prevailing interest rates, the
amount of administrative expenses, and the prepayment experience on the mortgage
assets. The values of residuals are extremely sensitive to changes in interest
rates. The yield to maturity on residual interests may be extremely sensitive to
prepayments on the related underlying mortgage assets in the same manner as an
interest-only class of stripped mortgaged-backed securities. In addition, if a
series of mortgage securities includes a class that bears interest at an
adjustable rate, the yield to maturity on the related residual interest may also
be extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. In certain circumstances, there may be little or no
excess cash flow payable to residual holders. The Portfolio may fail to recoup
fully its initial investment in a residual.
Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently may
not have the liquidity of other more established securities trading in other
markets. Residuals also may be subject to certain restrictions on
transferability. As a result, the Portfolio may be unable to dispose of these
interests at prices approximating the values the Portfolio had previously
assigned to them.
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The Fixed-Income Portfolio may invest in securities representing interests
in other types of financial assets, such as automobile-finance receivables or
credit-card receivables. Such securities are subject to many of the same risks
as are mortgage-backed securities, including prepayment risks, refinancing
risks, and risks of foreclosure. They may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers.
FOREIGN SECURITIES (FIXED-INCOME PORTFOLIO AND INTERNATIONAL PORTFOLIO).
Investment in foreign securities entails certain risks. Since foreign securities
are normally denominated and traded in foreign currencies, the value of a
Portfolio's assets may be affected favorably or unfavorably by currency exchange
rates and exchange control regulations, foreign withholding taxes and
restrictions or prohibitions on the repatriation of foreign currencies. There
may be less information publicly available about a foreign company than about a
U.S. company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign companies are less liquid and
at times more volatile than securities of comparable U.S. companies. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of a Portfolio's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, and diplomatic developments which could
affect the value of a Portfolio's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. In the case of securities issued by a foreign
governmental entity, the issuer may in certain circumstances be unable to
unwilling to meet its obligations on the securities in accordance with their
terms, and a Portfolio may have limited recourse available to it in the event of
default. The laws of some foreign countries may limit a Portfolio's ability to
invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. A Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
JUNK BONDS (FIXED-INCOME PORFOLIO). Junk bonds are securities which are
rated below Baa or BBB by Moody's Investors Services or Standard & Poor's (or,
if they are unrated, which a Portfolio's investment adviser believes to be of
comparable quality). See the Statement of Additional Information for further
descriptions of securities ratings assigned by Moody's and Standard & Poor's.
Junk bonds are considered to be of poor standing and predominantly speculative,
but have higher yields than higher-rated bonds. The Fixed-Income Portfolio will
not invest in any securities rated, at the time of purchase, below B by Moody's
or Standard & Poor's, or in unrated securities determined by Mentor Advisors to
be of comparable quality.
The values of junk bonds will fluctuate in response to changes in interest
rates, just as the value of other bonds does. The values of junk bonds will also
be affected by general economic and business conditions affecting the specific
industries of their issuers. Because the risk of default on a junk bond is
greater than on a higher-rated bond, a worsening of the issuer's financial
condition (whether due to industry or other general conditions or for reasons
specific to the issuer) will tend to lower the value of a junk bond more than it
would lower the value of a higher-rated bond. If a credit agency downgrades the
bond's rating, its value will decrease.
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<PAGE>
You should carefully consider your ability to assume the risks of owning
shares of a Portfolio that invests in junk bonds. The lower credit ratings of
junk bonds mean a higher risk of default. Even without a default, the presence
of junk bonds in the Portfolio will increase the Portfolio's volatility. At
times, there might not be a liquid market for certain junk bonds. This would
make it hard for the Portfolio to value them correctly and it might not be able
to sell them. Credit agency ratings only attempt to assess the risk of default,
not the volatility or liquidity of a security. Any such determinations would
therefore be made only by a Portfolio's investment adviser.
SMALLER COMPANIES (INTERNATIONAL PORTFOLIO). Smaller companies may offer
greater opportunities for capital appreciation than larger companies, but
investments in such companies involve certain special risks. Small companies
often have limited product lines, markets, or financial resources. They may be
dependent on a limited management group. While the markets in small company
securities have grown rapidly in recent years, such securities trade less
frequently and in smaller volume than more widely held securities. These
securities tend to fluctuate more sharply in value than other securities, and
the Portfolio may experience some difficulty in establishing or closing out
positions in these securities at prevailing market prices. There is usually less
publicly-available information about small companies and less market interest in
small company securities than in large company securities, and these securities
may therefore take longer to reflect the full value of their issuers' underlying
earnings potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The Portfolio may not be able to sell such
securities when it wishes. The Advisor or its affiliates or clients may hold
securities issued by the same issuers, and may in some cases have acquired the
securities at different times, on more favorable terms, or at more favorable
prices, than the Portfolio.
INTEREST RATE TRANSACTIONS (FIXED-INCOME PORTFOLIO). The Fixed-Income
Portfolio may enter into interest rate swaps and other interest rate
transactions, such as interest rate caps, floors, and collars, for hedging
purposes or to realize a greater current return. Interest rate swaps involve the
exchange by the Portfolio with another party of different types of interest-rate
streams (e.g., and exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal). The purchase of an interest
rate cap entitles the purchaser to receive payments on a notional principal
amount from the party selling the cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling the floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values. The Portfolio's ability to engage in certain interest rate
transactions may be limited by tax considerations. The use of interest rate
swaps and other interest rate transactions is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the investment adviser in
question is incorrect in its forecasts of market values, interest rates, or
other applicable factors, the investment performance of the Portfolio would be
less favorable than it would have been if this investment technique were not
used.
TEMPORARY DEFENSIVE STRATEGIES. A Portfolio's investment adviser (except in
the case of the Cash Management Portfolio) may implement temporary defensive
strategies in order to reduce fluctuations in the value of the Portfolio's
assets. At those times, the Portfolio may invest any portion of its assets in
cash or cash equivalents,
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money market instruments, or other short-term, high-quality investments the
investment adviser considers consistent with such defensive strategies. It is
impossible to predict when, or for how long, the Portfolio will use these
defensive strategies.
PORTFOLIO TURNOVER. The length of time a Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of a Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by a Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to a Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities, and therefore will affect
Portfolio performance. Such sales may increase the amount of capital gains (and,
in particular, short-term gains) realized by the Portfolios, on which
shareholders pay tax.
OTHER INVESTMENTS AND RISKS
The following provides more detail about the Portfolios' investments and
risks and other circumstances which could adversely affect the Portfolios'
shares or their total return or yield.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS (FIXED-INCOME PORTFOLIO).
The Fixed-Income Portfolio may purchase securities on a "when-issued" basis. The
price of such securities is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date (normally within one month of purchase). The Portfolio may also
purchase securities for future delivery. "When-issued" securities and forward
commitments may increase the Portfolio's overall investment exposure and may
result in losses.
LEVERAGE (INTERNATIONAL PORTFOLIO). The International Portfolio may borrow
money to invest in additional portfolio securities. This practice, known as
"leverage", increases the Portfolio's market exposure and its risk and may
result in losses. When the Portfolio has borrowed money for leverage and its
investments increase or decrease in value, the Portfolio's net asset value will
normally increase or decrease more than if it had not borrowed money. The
interest the Portfolio must pay on borrowed money will reduce the amount of any
potential gains or increase any losses. The extent to which the Portfolio will
borrow money, and the amount it may borrow, depend on market conditions and
interest rates. Successful use of leverage depends on Mentor Perpetual's ability
to predict market movements correctly.
OPTIONS AND FUTURES. The Fixed-Income and International Portfolios may buy
and sell call and put options to hedge against changes in net asset value or to
realize a greater current return. In addition, through the purchase and sale of
futures contracts and related options, these Portfolios may at times seek to
hedge against fluctuations in net asset value and, to the extent consistent with
applicable law, to increase investment return.
A Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that a
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
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Transactions in options and futures contracts involve brokerage costs and
may require a Portfolio to segregate assets to cover its outstanding positions.
For more information, see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Fixed-Income and International Portfolios
may buy and sell index futures contracts ("index futures") and options on index
futures and on indices for hedging purposes (or may purchase warrants whose
value is based on the value from time to time of one or more foreign securities
indices). An "index future" is a contract to buy or sell units of a particular
bond or stock index at an agreed price on a specified future date. Depending on
the change in value of the index between the time when a Portfolio enters into
and terminates an index future or option transaction, the Portfolio realizes a
gain or loss. These Portfolios may also, to the extent consistent with
applicable law, buy and sell index futures and options to increase its
investment return.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by a Portfolio that are the subject of a hedge.
The successful use by a Portfolio of the strategies described above further
depends on the ability of its investment adviser to forecast market movements
correctly. Other risks arise from a Portfolio's potential inability to close out
futures or options positions. Although a Portfolio will enter into options or
futures transactions only if its investment adviser believes that a liquid
secondary market exists for such options or futures contracts, there can be no
assurance that the Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price.
Each Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. A Portfolio may in certain instances purchase
and sell options in the over-the-counter markets. A Portfolio's ability to
terminate options in the over-the-counter markets may be more limited than for
exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would be unable to meet their obligations to
the Portfolio. A Portfolio will, however, engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of its investment adviser, the pricing mechanism and
liquidity of the over-the-counter markets are satisfactory and the participants
are responsible parties likely to meet their obligations.
A Portfolio will not purchase futures or options on futures or sell futures
if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fixed-Income Portfolio and the
International Portfolio may engage in foreign currency exchange transactions to
protect against uncertainty in the level of future currency exchange rates. The
Portfolios may engage in foreign currency exchange transactions in connection
with the purchase and sale of portfolio securities ("transaction hedging") and
to protect against changes in the value of specific portfolio positions
("position hedging").
The Fixed-Income Portfolio and the International Portfolio also may engage
in transaction hedging to protect against a change in foreign currency exchange
rates between the date on which it contracts to purchase or
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sell and the settlement date, or to "lock in" the U.S. dollar equivalent of a
dividend or interest payment in a foreign currency. The Portfolios may purchase
or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate
in connection with transaction hedging.
The Fixed-Income Portfolio and the International Portfolio may also enter
into contracts to purchase or sell foreign currencies at a future date ("forward
contracts") and may purchase and sell foreign currency futures contracts, for
hedging and not for speculation. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or rates
that may be higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have margin
requirements. For transaction hedging purposes, each of the Portfolios may also
purchase and sell call and put options on foreign currency futures contracts and
on foreign currencies.
The Fixed-Income Portfolio and the International Portfolio may engage in
position hedging to protect against a decline in value relative to the U.S.
dollar of the currencies in which portfolio securities are denominated or quoted
(or an increase in value of a currency in which securities the Portfolio intends
to buy are denominated). For position hedging purposes, the Portfolios may
purchase or sell foreign currency futures contracts and foreign currency forward
contracts, and may purchase and sell put and call options on foreign currency
futures contracts and on foreign currencies. In connection with position
hedging, the Portfolios may also purchase or sell foreign currencies on a spot
basis.
Although there is no limit to the amount of either Portfolio's assets that
may be invested in foreign currency exchange and foreign currency forward
contacts, each Portfolio will only enter into such transactions to the extent
necessary to effect the hedging transactions described above.
REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolios may enter into
repurchase agreements and securities loans. Under a repurchase agreement, a
Portfolio purchases a debt instrument for a relatively short period (usually not
more than one week), which the seller agrees to repurchase at a fixed time and
price, representing the Portfolio's cost plus interest. Under a securities loan,
a Portfolio lends portfolio securities. A Portfolio will enter into repurchase
agreements and (in the case of the International Portfolio) securities loans
only with commercial banks and with registered broker-dealers who are members of
a national securities exchange or market makers in government securities, and in
the case of repurchase agreements, only if the debt instrument is a U.S.
Government security. Although Mentor Advisors or Mentor Perpetual, as the case
may be, will monitor these transactions to ensure that they will be fully
collateralized at all times, a Portfolio bears a risk of loss if the other party
defaults on its obligation and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral. If the other party should
become involved in bankruptcy or insolvency proceedings, it is possible that the
Portfolio may be treated as an unsecured creditor and be required to return the
underlying collateral to the other party's estate.
YEAR 2000. It is generally recognized that certain computer systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of the software to distinguish the Year 2000 from the
Year 1900. The Portfolios receive services from a number of providers which rely
on the smooth functioning of their respective systems and the systems of others
to perform those services. In addition, the Portfolios' software, that of the
issuers of securities held by the Portfolios and the securities markets
generally could be subject to problems caused by the "Year 2000" problem. Mentor
Advisors and Mentor Perpetual are taking steps that they believe are reasonably
designed to address each of these potential "Year 2000" problems and to obtain
satisfactory assurances
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that comparable steps are being taken by the Portfolios' other major service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolios from this problem.
MANAGEMENT RISK. Although a Portfolio may have the flexibility to use some
or all of the investment strategies, securities and derivative instruments
described in this prospectus and in the Statement of Additional Information, the
Advisor may choose not to use a particular strategy or type of security for a
variety of reasons. Also, in some market conditions some strategies and
securities may not be available for use. These choices may cause the Portfolio
to miss opportunities, lose money or not achieve its objective.
CHANGES IN INVESTMENT POLICY. Except for investment policies designated in
this Prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. As a matter of policy,
the Trustees will not materially change any Portfolio's investment objective
without shareholder approval. (Any such change could, of course, result in a
change in the nature of the securities in which the Portfolio may invest and the
risks involved in an investment in the Portfolio.)
MANAGEMENT
The Trustees of Mentor Institutional Trust ("the Trust") are responsible
for generally overseeing the conduct of the Trust's business. They have hired
MENTOR INVESTMENT ADVISORS, LLC ("MENTOR ADVISORS"), located at 901 East Byrd
Street, Richmond, Virginia 23219, to act as investment adviser to the U.S.
Government Cash Management and Fixed-Income Portfolios and MENTOR PERPETUAL
ADVISORS ("MENTOR PERPETUAL"), LLC, located at 901 East Byrd Street, Richmond,
Virginia, to act as investment adviser to the International Portfolio.
In 1998, Mentor Advisors received no compensation from the Portfolios for
its advisory services, and Mentor Perpetual received a fee of 1.00% of average
net assets for its advisory services to the International Portfolio. Mentor
Investment Group, LLC ("Mentor Investment Group"), Mentor Advisors or Mentor
Perpetual may agree to bear certain expenses of the Portfolios pursuant to
voluntary expense limitations from time to time in effect.
Mentor Advisors is a wholly owned subsidiary of Mentor Investment Group,
which is in turn a subsidiary of Wheat First Butcher Singer, Inc. ("Wheat First
Butcher Singer"). Wheat First Butcher Singer is wholly owned subsidiary of First
Union Corp. ("First Union"), a leading financial services company with
approximately $234 billion in assets and $17 billion in total stockholders'
equity as of September 30, 1998. Mentor Advisors and its affiliates serve as
investment advisers to over twenty separate investment portfolios in the Mentor
Family of Funds, with total assets under management of more than $15 billion.
All investment decisions for the U.S. Government Cash Management and
Fixed-Income Portfolios are made by investment teams at Mentor Advisors.
Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc and Mentor Advisors. The Perpetual organization
currently serves as investment adviser for assets of more than $14 billion. Its
clients include 28 unit investment trusts and other public investment pools,
including private individuals, charities, pension plans, and life assurance
companies. Mentor Perpetual currently serves as investment adviser to the Mentor
Perpetual Global Portfolio, an open-end mutual fund which is a series of Mentor
Funds. Investment decisions for the International Portfolio are made by a team
of investment professionals.
Subject to the general oversight of the Trustees, Mentor Advisors and
Mentor Perpetual manage their respective Portfolios in accordance with the
stated policies of each Portfolio. Each of Mentor Advisors and Mentor
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Perpetual makes investment decisions for its respective Portfolios and places
the purchase and sale orders for each Portfolio's portfolio transactions. In
selecting broker-dealers, Mentor Advisors and Mentor Perpetual may consider
research and brokerage services furnished to them and their affiliates. Subject
to seeking the best overall terms available, Mentor Advisors and Mentor
Perpetual may consider sales of shares of a Portfolio (and, if permitted by law,
of other funds in the Mentor family) as a factor in the selection of
broker-dealers to execute portfolio transactions for that Portfolio. Mentor
Advisors and Mentor Perpetual may at times cause the Portfolios to pay
commissions to broker-dealers which are affiliated with Mentor Advisors or
Mentor Perpetual.
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each of the Portfolios (other than the U.S. Government Cash Management
Portfolio) calculates the net asset value of a share of each class by dividing
the total value of its assets attributable to that class, less liabilities
attributable to that class, by the number of shares of the class outstanding.
Shares are valued as of the close of regular trading on the New York Stock
Exchange each day the Exchange is open. Portfolio securities for which market
quotations are readily available are stated at market value. Short-term
investments that will mature in 60 days or less are stated at amortized cost,
which has been determined to approximate the fair market value of such
investments. All other securities and assets are valued at their fair values.
The net asset value of shares of different classes will generally differ due to
the variance in daily net income realized by and dividends paid on each class,
and any differences in the expenses of different classes.
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rates or at such other rates as may be used in accordance
with procedures approved by the Trustees. As a result, fluctuations in the
values of such currencies in relation to the U.S. dollar will affect the net
asset value of Portfolio shares even though there has not been any change in the
values of such securities as quoted in such foreign currencies. All assets and
liabilities of a Portfolio denominated in foreign currencies are valued in U.S.
dollars based on the exchange rate last quoted by a major bank prior to the time
when the net asset value of the Portfolio's shares is calculated. Because
certain of the securities in which the Portfolios may invest may trade on days
when the Portfolios do not price their shares, the net asset value of a
Portfolio's shares may change on days when shareholders will not be able to
purchase or redeem their shares.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of a particular class of shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds, U.S. Government securities, and tax-exempt securities) are
determined based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
following procedures approved by the Trustees.
THE U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO values its shares twice each
day, once at 12:00 noon and again at the close of regular trading on the New
York Stock Exchange. The Portfolio's investments are valued at amortized cost
according to Securities and Exchange Commission Rule 2a-7. The Portfolio will
not normally have unrealized gains or losses so long as it values its
investments by the amortized cost method.
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HOW TO BUY SHARES
Shares of the FIXED-INCOME and INTERNATIONAL PORTFOLIOS are sold at the net
asset value next determined after a purchase order is received by a Portfolio.
In most cases, in order to receive that day's public offering price, your order
must be received by the Trust or Mentor Distributors, LLC ("Mentor
Distributors") before the close of regular trading on the New York Stock
Exchange.
The U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO offers its shares
continuously at a price of $1.00 per share. Because the Portfolio seeks to be
fully invested at all times, investments must be in Same Day Funds to be
accepted. "Same Day Funds" are funds credited by the applicable regional Federal
Reserve Bank to the account of the Portfolio at its designated bank.
Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, serves as distributor of the Portfolios' shares. Mentor Distributors is
not obligated to sell any specific amount of shares of any of the Portfolios.
An investor may make an initial purchase of shares of any of the Portfolios
by submitting completed application materials along with a purchase order, and
by making payment to the Trust. Investors will be required to make minimum
initial investments of $500,000 in Class Y (Institutional) Shares of the
Portfolios and minimum subsequent investments of $25,000. Investments made
through advisory accounts maintained with investment advisers registered under
the Investment Advisers Act of 1940, as amended (including "wrap" accounts), are
not subject to these minimum investment requirements. The Portfolios reserve the
right at any time to change the initial and subsequent investment minimums
required of investors. If an investor purchases shares of any of the Portfolios,
other than the U.S. Government Cash Management Portfolio, through EVEREN
Securities, Inc. or certain other financial institutions that have made
arrangements with Mentor Distributors with the redemption proceeds received by
the investor within the preceding 90 days from the sale of shares of any
non-Mentor open-end mutual fund, EVEREN Securities, Inc. or such other financial
institutions may compensate the investor's investment consultant in connection
with that purchase.
Shares of the Portfolios may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to a Portfolio's investment adviser, or (iii) a
combination of such securities and cash. Purchase of shares of a Portfolio in
exchange for securities is subject in each case to the determination by the
Portfolio's investment adviser that the securities to be exchanged are
acceptable for purchase by the Portfolio. Securities accepted by a Portfolio's
investment adviser in exchange for shares will be valued in the same manner as
the Portfolio's assets as of the time of the next determination of net asset
value after such acceptance. All dividends and subscription or other rights
which are reflected in the market price of accepted securities at the time of
valuation become the property of the Portfolio and must be delivered to the
Portfolio upon receipt by the investor from the issuer. A gain or loss for
federal income tax purposes would be realized upon the exchange by an investor
that is subject to federal income taxation, depending upon the investor's basis
in the securities tendered. A shareholder who wishes to purchase shares by
exchanging securities should obtain instructions by calling Mentor Services
Company, Inc. at 1-800-869-6042.
Mentor Distributors, the investment adviser, or affiliates thereof, at
their own expense and out of their own assets (or in conjunction with other
entities), may also periodically sponsor programs that offer additional
compensation in connection with sales of shares of the Portfolios. Compensation
may include, but is not limited to, financial assistance to dealers in
connection with conferences, sales, or training programs for their employees,
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seminars for the public, advertising or sales campaigns, or other
dealer-sponsered special events. In some instances, this compensation may be
made available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of shares. Dealers may not use sales of the
Trust's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. Certain dealers may not sell
all classes of shares.
Mentor Advisors, Mentor Perpetual, and Mentor Distributors reserve the
right to reject any investment in any Portfolio.
HOW TO SELL SHARES
A shareholder may redeem all or any portion of its shares in a Portfolio
any day the New York Stock Exchange is open by sending a signed letter of
instruction and stock power form, along with any certificates that represent
shares the shareholder wants to sell, the Portfolio c/o Boston Financial Data
Services, 2 Heritage Drive, North Quincy, MA 02171. Redemptions will be effected
at the net asset value per share of the relevant class of shares of the
Portfolio next determined after the receipt by the Portfolio of redemption
instructions in "good order" as described below. In order to receive that day's
net asset value, your request must be received before the close of regular
trading on the New York Stock Exchange. The Portfolio will only redeem shares
for which it has received payment. A check for the proceeds will normally be
mailed on the next business day after a request in good order is received.
A redemption request will be considered to have been made in "good order"
if the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be
redeemed, and identifies the shareholder's Portfolio account number.
(2) the request is signed by each registered owner exactly as the shares
are registered; and
(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed for transfer (or are accompanied by an endorsed
stock power) and accompany the redemption request.
If shares of a Portfolio to be redeemed represent an investment made by
check, the Trust reserves the right not to transmit the redemption proceeds to
the shareholder until the check has been collected, which may take up to 15 days
after the purchase date.
Each Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against the possibility of fraud. Mentor Distributors
usually requires additional documentation for the sale of shares by a
corporation, partnership, agent, fiduciary, or surviving joint owner. Contact
Mentor Services Company, Inc. for details.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, a
Portfolio may suspend repurchases, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, each Portfolio reserves
the right, if conditions exist which make cash payments undesirable, to honor
any request for
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redemption by making payment in whole or in part by securities valued in the
same way as they would be valued for purposes of computing the Portfolio's per
share net asset value. If payment is made in securities, a shareholder may incur
brokerage expenses in converting those securities into cash.
HOW DISTRIBUTIONS ARE MADE
The FIXED-INCOME PORTFOLIO distributes net investment income quarterly and
any net realized capital gains at least annually. The INTERNATIONAL PORTFOLIO
distributes net investment income and any net realized capital gains at least
annually. Distributions from capital gains are made after applying any available
capital loss carryovers.
The U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO determines its net income as
of the close of regular trading on the New York Stock Exchange each day the
Exchange is open. Each determination of the Portfolio's net income includes (i)
all accrued interest on the Portfolio's investments, (ii) plus or minus all
realized and unrealized gains and losses on the Portfolio's investments, (iii)
less all accrued expenses of the relevant class of shares of the Portfolio.
The U.S. Government Cash Management Portfolio declares all of its net
income as a distribution on each day it is open for business, as a dividend to
shareholders of record immediately prior to the close of regular trading on the
New York Stock Exchange. Shareholders whose purchase of shares of the Portfolio
is accepted at or before 12:00 noon on any day will receive the dividend
declared by the Portfolio for that day; shareholders who purchase shares after
12:00 noon on any day will receive the dividend declared by the Portfolio for
that day; shareholders who purchase shares after 12:00 noon will begin earning
dividends on the next business day after the Portfolio accepts their order. The
Portfolio's net income for Saturdays, Sundays, and holidays is declared as a
dividend on the preceding business day. Dividends for the immediately preceding
calendar month will be paid on the first day of each calendar month (or, if that
day is not a business day, on the next business day), except that the
Portfolio's schedule for payment of dividends during the month of December may
be adjusted to assist in tax reporting and distribution requirements. A
shareholder that withdraws the entire balance of an account at any time during a
month will be paid all dividends declared through the time of the withdrawal.
Since the net income of the Portfolio is declared as a dividend each time it is
determined, the net asset value per share of the Portfolio normally remains at
$1 per share immediately after each determination and dividend declaration.
All Portfolio distributions will be invested in additional Portfolio shares
of the same class, unless the shareholder instructs a Portfolio otherwise.
TAXES
The Portfolios will distribute substantially all of their net investment
income and capital gain net income on a current basis.
Distributions of net investment income and short-term capital gains are
taxable as ordinary income. Distributions of capital gain on assets held more
than 12 months will be taxable as capital gains. Distributions are taxable
whether received in cash or reinvested in additional shares. DISTRIBUTIONS ARE
TAXABLE TO A SHAREHOLDER EVEN IF THEY ARE PAID FROM INCOME OR GAINS EARNED BY A
PORTFOLIO PRIOR TO THE SHAREHOLDER'S INVESTMENT AND THUS WERE INCLUDED IN THE
PRICE PAID BY THE SHAREHOLDER.
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Any gain resulting from the sale or exchange of your shares generally also
will be subject to tax. Distributions and transactions in shares may also be
subject to state and local taxes. The nature of each Portfolio's distributions
will be affected by its investment strategies. A Portfolio whose investment
return consists largely of interest, dividends and capital gains from short-term
holdings will distribute largely ordinary income. A Portfolio whose return comes
largely from the sale of long-term holdings will distribute largely long-term
capital gains.
INTERNATIONAL PORTFOLIO ONLY. Shareholders of the Portfolio who are U.S.
citizens or residents may be able to claim a foreign tax credit or deduction on
their U.S. income tax returns with respect to foreign taxes paid by the
Portfolio. If, at the end of the fiscal year of the Portfolio, more than 50% of
the Portfolio's total assets are represented by stock or securities of foreign
corporations, the Portfolio intends to make an election permitted by the
Internal Revenue Code to treat any eligible foreign taxes that were paid by the
Portfolio as paid by its shareholders. In that case, shareholders will be
required to include in U.S. taxable income their pro rata share of such taxes,
but may then be entitled to claim a foreign tax credit or deduction (but not
both) for their share of such taxes. The Portfolio's investments in foreign
securities may be subject to foreign withholding taxes. In that case, the
Portfolio's yield on those securities would be decreased. In addition, the
Portfolio's investments in foreign securities or foreign currencies may increase
or accelerate the Portfolio's recognition of ordinary income and may affect the
timing or amount of the Portfolio's distributions.
The foregoing is a summary of certain federal income tax consequences of
investing in a Portfolio. Dividends and distributions also may be subject to
state, local and foreign taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state, local, or foreign
taxes. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of a Portfolio, including the possibility
that distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolio's financial performance for the period of its operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by. KPMG Peat Marwick LLP, the
Trust's independent auditors. Their report dated December 18, 1998 on the
financial statements of the Trust for the fiscal year ended October 31, 1998 is
included in each Portfolio's Annual Report to shareholders, which is
incorporated into the Statement of Additional Information by reference. A copy
of the Annual Report may be obtained free of charge from the Trust. (Until
November 1, 1996 the U.S. Government Cash Management Portfolio was known as the
Cash Management Portfolio and invested in a broad range of money market
instruments, not limited (as it currently is) to investments in U.S. Government
securities and ments with respect to such securities. During the
periods prior to October 31, 1996, the Fixed-Income Portfolio invested only in
investment grade fixed-income securities.)
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S. GOVERNMENT
CASH MANAGEMENT PORTFOLIO
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
10/31/98 10/31/97 10/31/96 10/31/95 (B)
------------ ------------- ------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS ................
Net investment income ........................... 0.05 0.05 0.05 0.05
Net realized and unrealized gain (loss) on
investments ................................... --* --* --* --
--------- ---------- --------- ---------
Total from investment operations ................ 0.05 0.05 0.05 0.05
------- -------- ------- ---------
LESS DISTRIBUTIONS
From net investment income ...................... (0.05) (0.05) (0.05) (0.05)
From capital gains .............................. --* --* --* --
--------- ---------- --------- ---------
Total distributions ............................. (0.05) (0.05) (0.05) (0.05)
-------- --------- -------- ---------
NET ASSET VALUE, END OF PERIOD ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========= ======== =========
Total Return (d) ................................. 5.63% 5.56% 5.60% 5.06%
======== ========= ======== =========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......... $ 64,827 $ 259,950 $ 87,973 $ 69,997
Ratio of expenses to average net assets .......... 0.06% 0.06% 0.04% 0.04% (a)
Ratio of expenses to average net assets
excluding waiver ................................ 0.12% 0.09% 0.12% 0.18%(a)
Ratio of net investment income to average net
assets .......................................... 5.48% 5.45% 5.54% 5.56% (a)
======== ========= ======== =========
</TABLE>
- ----------
(a) Annualized.
(b) For the period from December 5, 1994 (commencement of operations) to October
31, 1995.
(d) Total return does not reflect sales commission and is not annualized.
* Reflects net realized gain (loss) which was less than $0.005 per share.
See notes to financial statements.
22
<PAGE>
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FIXED-INCOME PORTFOLIO
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
10/31/98 10/31/97 10/31/96 10/31/95 (C)
------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 13.11 $ 12.89 $ 13.71 $ 12.50
INCOME FROM INVESTMENT OPERATIONS ................
Net investment income ........................... 0.79 0.83 0.77 0.81
Net realized and unrealized gain (loss) on
investments ................................... 0.13 0.21 (0.16) 1.14
-------- -------- -------- ----------
Total from investment operations ................ 0.92 1.04 0.61 1.95
-------- -------- -------- ----------
LESS DISTRIBUTIONS
From net investment income ...................... (0.82) (0.82) (0.77) (0.74)
From capital gains .............................. (0.06) -- (0.66) --
-------- -------- -------- ----------
Total distributions ............................. (0.88) (0.82) (1.43) (0.74)
-------- -------- -------- ----------
NET ASSET VALUE, END OF PERIOD ................... $ 13.15 $ 13.11 $ 12.89 $ 13.71
======== ======== ======== ==========
Total Return (d) ................................. 7.21% 8.39% 4.87% 15.90%
======== ======== ======== ==========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......... $ 83,372 $ 61,738 $ 49,962 $ 34,053
Ratio of expenses to average net assets .......... 0.10% 0.10% 0.05% 0.05% (a)
Ratio of expenses to average net assets
excluding waiver ................................ 0.10% 0.15% 0.17% 0.22%(a)
Ratio of net investment income to average net
assets .......................................... 6.08% 6.52% 6.22% 6.75% (a)
Portfolio turnover rate .......................... 137% 194% 226% 302%
======== ======== ======== ==========
</TABLE>
- ----------
(a) Annualized.
(c) For the period from December 6, 1994 (commencement of operations) to October
31, 1995.
(d) Total return does not reflect sales commission and is not annualized.
See notes to financial statements.
23
<PAGE>
MENTOR INSTITUTIONAL TRUST
FINANCIAL HIGHLIGHTS
(CLASS Y SHARES)
<TABLE>
<CAPTION>
PERPETUAL INTERNATIONAL PORTFOLIO
-------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
10/31/98 10/31/97 10/31/96 (F)
------------ ------------ -------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 13.89 $ 12.12 $ 12.50
INCOME FROM INVESTMENT OPERATIONS ................................
Net investment income ........................................... 0.27 0.15 0.04
Net realized and unrealized gain (loss) on investments .......... 0.79 1.67 (0.42)
-------- -------- ----------
Total from investment operations ................................ 1.06 1.82 (0.38)
-------- -------- ----------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.02) (0.05) --
Capital gains ................................................... (0.05) -- --
Tax return of capital ........................................... (0.14) -- --
-------- -------- ----------
Total distributions ............................................. (0.21) (0.05) --
-------- -------- ----------
NET ASSET VALUE, END OF PERIOD ................................... $ 14.74 $ 13.89 $ 12.12
======== ======== ==========
Total Return* .................................................... 7.69% 15.07% (3.04%)
======== ======== ==========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......................... $ 10,979 $ 16,110 $ 8,741
Ratio of expenses to average net assets .......................... 1.10% 1.10% 1.10% (a)
Ratio of expenses to average net assets excluding waiver ......... 1.43% 1.74% 1.75% (a)
Ratio of net investment income to average net assets ............. 1.21% 1.20% 0.89% (a)
Portfolio turnover rate .......................................... 120% 107% 59%
======== ======== ==========
</TABLE>
- ----------
(a) Annualized.
(f) For the period from May 29, 1996 (commencement of operations) to October 31,
1996.
* Total return does not reflect sales commission and is not annualized.
See notes to financial statements.
24
<PAGE>
THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION (SAI) AND ANNUAL AND
SEMI-ANNUAL REPORTS TO SHAREHOLDERS INCLUDE ADDITIONAL INFORMATION ABOUT THE
PORTFOLIOS. THE SAI AND THE FINANCIAL STATEMENTS INCLUDED IN EACH PORTFOLIO'S
MOST RECENT ANNUAL REPORT TO SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, WHICH MEANS THEY ARE PART OF THIS PROSPECTUS FOR LEGAL
PURPOSES. EACH PORTFOLIO'S ANNUAL REPORT DISCUSSES THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED EACH PORTFOLIO'S PERFORMANCE
DURING ITS LAST FISCAL YEAR. YOU MAY GET FREE COPIES OF THESE MATERIALS, REQUEST
OTHER INFORMATION ABOUT A PORTFOLIO, OR MAKE SHAREHOLDER INQUIRIES BY CALLING
1-800-382-0016.
YOU MAY REVIEW AND COPY INFORMATION ABOUT THE TRUST, INCLUDING ITS SAI,
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. YOU MAY CALL THE COMMISSION AT 1-800-SEC-0330 FOR INFORMATION ABOUT THE
OPERATION OF THE PUBLIC REFERENCE ROOM. YOU MAY ALSO ACCESS REPORTS AND OTHER
INFORMATION ABOUT THE TRUST ON THE COMMISSION'S INTERNET SITE AT
HTTP://WWW.SEC.GOV. YOU MAY GET COPIES OF THIS INFORMATION, UPON PAYMENT OF
COPYING COSTS, BY WRITING THE PUBLIC REFERENCE SECTION OF THE COMMISSION,
WASHINGTON, D.C. 20549-6009. YOU MAY NEED TO REFER TO THE TRUST'S FILE NUMBER
UNDER THE INVESTMENT COMPANY ACT, WHICH IS 811-8484.
MENTOR INVESTMENT GROUP
901 East Byrd Street
Richmond, VA 23219
(800) 869-6042
1999 MENTOR DISTRIBUTORS, LLC
MENTOR
INSTITUTIONAL
TRUST
-------------------------
PROSPECTUS
-------------------------
March 1, 1999
[MENTOR INVESTMENT GROUP LOGO]
<PAGE>
P R O S P E C T U S March 1, 1999
Class A and B Shares
Mentor Perpetual
International Portfolio
o Seeking long-term capital appreciation by investing in a diversified
portfolio of equity securities of issuers outside the United States.
o Advisor: Mentor Perpetual Advisors, LLC ("Mentor Perpetual")
You can call Mentor Services Company, Inc. at (800) 382-0016 to find out
more about the Portfolio and other mutual funds in the Mentor family.
The prospectus explains what you should know about the Portfolio before you
invest. Please read it carefully.
----------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary Information ............................... 3
Expense Summary ................................... 5
Principal Investment Strategies and Risks ......... 6
Other Investments and Risks ....................... 8
Management ........................................ 10
How the Portfolio Values Its Shares ............... 11
Sales Arrangements ................................ 12
How to Buy Shares ................................. 12
Distribution Plan (Class B Shares) ................ 16
How to Sell Shares ................................ 17
How to Exchange Shares ............................ 18
Other Services .................................... 19
How Distributions Are Made ........................ 19
Taxes ............................................. 19
Financial Highlights .............................. 21
</TABLE>
2
<PAGE>
SUMMARY INFORMATION
The Portfolio is a diversified investment portfolio of Mentor Institutional
Trust. The following summary describes the Portfolio's investment objective and
principal investment strategies and identifies the principal risks of investing
in the Portfolio.
Below the Portfolio's description is a bar chart which provides some
indication of the risks of investing in the Portfolio by showing how the
investment returns of the Portfolio's Class A shares have varied in the period
since they were first offered. The table following the bar chart shows how the
Portfolio's average annual returns for its Class A Shares for the last year and
for the life of the Portfolio compared to returns of a comparable index,
generally a broad-based securities market index. PAST PERFORMANCE IS NOT
NECESSARILY AN INDICATION OF FUTURE PERFORMANCE. It is possible to lose money on
investments in the Portfolio.
o Investment objective. Long-term capital appreciation.
o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio seeks to invest in
companies, large or small, where earnings are believed to be in a relatively
strong growth trend, or where significant further growth is not anticipated but
where the shares are thought to be undervalued. The Portfolio will normally
invest a substantial portion of its assets in securities of smaller companies
and may at times invest a substantial portion of its assets in issuers located
in emerging markets. In identifying candidates for investment, Mentor Perpetual
considers a variety of factors, including the likelihood of above average
earnings growth, attractive relative valuation, and whether the company has any
proprietary advantages. Mentor Perpetual may also conduct discussions with
management, visit the premises of issuers and analyze industry and market trends
in order to select its investments. The Portfolio's investments will normally
include a diversified portfolio of equity securities of issuers located outside
the United States, such as common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
common stocks or preferred stocks. The Portfolio may invest to a lesser extent
in debt securities if Mentor Perpetual believes they would help achieve the
Portfolio's objective. When it chooses to invest in debt, the Portfolio seeks to
maintain relatively high average credit quality but may vary its maturity. To
this end, it will only invest in debt securities which are of investment grade.
Mentor Perpetual will adjust the maturity of the Portfolio in response to
changing market conditions.
o Principal risks.
o EQUITY SECURITIES. A risk of investing in the Portfolio is the risk that
the value of the equity securities in the portfolio will fall, or will not
appreciate as anticipated by Mentor Perpetual, due to factors that adversely
affect markets in general or particular companies in the portfolio. The
Portfolio is more sensitive to this risk because it may invest a substantial
portion of its assets in smaller companies.
o FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among other things, risks related to
political or economic instability, currency exchange and taxation.
o EMERGING MARKET SECURITIES. Investments in emerging markets are subject
to the same risks applicable to foreign investments generally but to a greater
extent. For example, the securities markets and legal systems in emerging
markets may provide few, or none, of the advantages or protections of markets or
legal systems available in more developed countries. Many of the securities in
which the Portfolio may invest may trade in limited volume and may be illiquid.
Exchanges, if any, on which they trade may not provide all of the conveniences
or protections provided by securities exchanges in more developed markets.
3
<PAGE>
o SMALLER COMPANIES. The Portfolio may invest a substantial portion of its
assets in smaller companies, which tend to be more vulnerable to adverse
developments than larger companies. Smaller companies may have limited product
lines, markets, or financial resources, or may depend on a limited management
group. Their securities may trade infrequently and in limited volumes. As a
result, the prices of these securities may fluctuate more than the prices of
securities of larger, more widely traded companies.
o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to changes
in interest rates) and to credit risks (the risk that the issuer may become
unable or unwilling to make timely payments of principal and interest).
Securities rated Baa or BBB lack outstanding investment characteristics and have
speculative characteristics and are subject to greater credit and market risks
than higher-rated securities. When interest rates rise, the values of
fixed-income securities held by the Portfolio decline. The longer the maturity
of a security, the more its value will decline when interest rates rise.
Although the Portfolio will only purchase securities which meet its credit
guidelines at the time of purchase, it will not necessarily sell securities
which are downgraded after purchase.
PERPETUAL INTERNATIONAL PORTFOLIO -- CLASS A SHARES
[GRAPH]
Calendar Year End Annual Return
1997 10.05%
1998 13.30%
During the periods shown above, the highest quarterly return was 16.84% for
the quarter ended December 31, 1998, and the lowest was (15.04)% for the quarter
ended September 30, 1998. The bar chart does not reflect sales loads. If sales
loads were reflected, the returns would be lower than those shown. The returns
shown are for Class A shares. Because operating expenses attributable to Class B
shares are higher than those attributable to Class A shares, investment returns
for Class B shares are lower than for Class A shares.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIODS ENDING LIFE OF CLASS
DECEMBER 31, 1998) PAST YEAR (SINCE 12/27/96)
- --------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Perpetual International Portfolio -- Class A ............. 13.30% 12.08%
Perpetual International Portfolio -- Class B ............. 12.46% 11.55%
Morgan Stanley Capital International EAFE Index* ......... 20.33% 10.82%
</TABLE>
4
<PAGE>
- ----------
* The Morgan Stanley Capital International EAFE Index is an unmanaged index
composed of approximately 1,119 securities issued by foreign companies listed
on Europe, Australia & Far East (EAFE) stock exchanges. This is a total return
index with gross dividends reinvested. The performance of countries and
unmanaged indexes does not reflect expenses and may not correspond to the
performance of the Portfolio, which is actively managed and incurs expenses.
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown are based on expenses incurred in respect of Class A
and Class B Shares of the Portfolio for the 1998 fiscal year. The Examples show
the cumulative expenses attributable to a hypothetical $10,000 investment in
Class A and Class B Shares of the Portfolio over specified periods.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- -----------
<S> <C> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT):
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)(1).... 5.75% None
Maximum Sales Load Imposed on Reinvested Dividends ............................... None None
Maximum Deferred Sales Load (as a percentage of the lower of the original purchase
price or redemptionproceeds)(3)................................................ None(2) 4.0%(4)
Redemption Fees .................................................................. None None
Exchange Fee ..................................................................... None None
</TABLE>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ----------
<S> <C> <C>
Management Fees .................................... 1.00% 1.00%
12b-1 Fees ......................................... 0.00% 0.75%
Shareholder Service Fee ............................ 0.25% 0.25%
Other Expenses ..................................... 0.43% 0.43%
---- ----
Total Annual Portfolio Operating Expenses .......... 1.68% 2.43%
</TABLE>
- ----------
(1) Long-term Class B shareholders may pay more than the economic equivalent of
the maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc.
(2) A contingent deferred sales charge ("CDSC") of 1.00% is assessed on Class A
shares that were purchased without an initial sales charge as part of an
investment of over $1,000,000 that are redeemed within one year of purchase.
(3) The amount redeemed is computed as the lesser of the current net asset value
of the shares redeemed, and the original purchase price of the shares. See
"How to buy shares -- Class B shares."
5
<PAGE>
(4) In the first year, declining to 1.00% in the fifth year and eliminated
thereafter. Shares purchased as part of asset-allocation plans pursuant to
the BL Purchase Program are subject to a CDSC of 1.00% if the shares are
redeemed within one year of purchase. See "How to buy shares -- the BL
Purchase Program."
EXAMPLES
These Examples are intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
The Examples assume that you invest $10,000 in the class of shares of the
Portfolio indicated for the time periods indicated and then either (a) redeem
all of your shares at the end of those periods or (b) do not redeem your shares.
The Examples also assume that your investment has a 5% return each year and that
the Portfolio's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
(a) Assuming Redemption
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ----------
<S> <C> <C>
1 year .................... $ 746 $ 646
3 years ................... $ 1,105 $ 1,058
5 years ................... $ 1,488 $ 1,396
10 years .................. $ 2,562 $ 2,766
</TABLE>
(b) Assuming No Redemption
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- ----------
<S> <C> <C>
1 year .................... $ 746 $ 246
3 years ................... $ 1,105 $ 758
5 years ................... $ 1,488 $ 1,296
10 years .................. $ 2,562 $ 2,766
</TABLE>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
The Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolio's principal
strategies and risks.
FOREIGN SECURITIES. Investments in foreign securities entail certain risks.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Portfolio's assets may be affected favorably or
unfavorably by currency exchange rates, exchange control regulations, foreign
withholding taxes and restrictions or prohibitions on the repatriation of
foreign currencies. There may be less information publicly available about a
foreign company than about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Portfolio's assets held abroad)
and expenses not present in the settlement of domestic investments.
6
<PAGE>
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, and diplomatic developments which could
affect the value of the Portfolio's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. In the case of securities issued by a foreign
governmental entity, the issuer may in certain circumstances be unable to
unwilling to meet its obligations on the securities in accordance with their
terms, and the Portfolio may have limited recourse available to it in the event
of default. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
SMALLER COMPANIES. Smaller companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
involve certain special risks. Small companies often have limited product lines,
markets, or financial resources. They may be dependent on a limited management
group. While the markets in small company securities have grown rapidly in
recent years, such securities trade less frequently and in smaller volume than
more widely held securities. These securities tend to fluctuate more sharply in
value than other securities, and the Portfolio may experience some difficulty in
establishing or closing out positions in these securities at prevailing market
prices. There is usually less publicly-available information about small
companies and less market interest in small company securities than in large
company securities, and these securities may therefore take longer to reflect
the full value of their issuers' underlying earnings potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The Portfolio may not be able to sell such
securities when it wishes. The Advisor or its affiliates or clients may hold
securities issued by the same issuers, and may in some cases have acquired the
securities at different times, on more favorable terms, or at more favorable
prices, than the Portfolio.
TEMPORARY DEFENSIVE STRATEGIES. Mentor Perpetual may implement temporary
defensive strategies in order to reduce fluctuations in the value of the
Portfolio's assets. At those times, the Portfolio may invest any portion of its
assets in cash or cash equivalent, money market instruments, or other
short-term, high-quality investments Mentor Perpetual considers consistent with
such defensive strategies. It is impossible to predict when, or for how long,
the Portfolio will use these defensive strategies.
PORTFOLIO TURNOVER. The length of time the Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of the Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by the Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to the Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities, and therefore will affect
Portfolio performance. Such sales may increase the amount of capital gains (and,
in particular, short-term gains) realized by the Portfolio, on which
shareholders pay tax.
7
<PAGE>
OTHER INVESTMENTS AND RISKS
The following provides more detail about the Portfolio's other investments
and risks and other circumstances which could adversely affect the Portfolio's
shares or its total return.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio may engage in foreign
currency exchange transactions to protect against uncertainty in the level of
future currency exchange rates. The Portfolio may engage in foreign currency
exchange transactions in connection with the purchase and sale of portfolio
securities ("transaction hedging") and to protect against changes in the value
of specific portfolio positions ("position hedging").
The Portfolio also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which it contracts
to purchase or sell and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign currency. The
Portfolio may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging.
The Portfolio may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and may purchase and sell
foreign currency futures contracts, for hedging and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange currency
at a future time at a rate or rates that may be higher or lower than the spot
rate. Foreign currency futures contracts are standardized exchange-traded
contracts and have margin requirements. For transaction hedging purposes, the
Portfolio may also purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
The Portfolio may engage in position hedging to protect against a decline
in value relative to the U.S. dollar of the currencies in which portfolio
securities are denominated or quoted (or an increase in value of a currency in
which securities the Portfolio intends to buy are denominated). For position
hedging purposes, the Portfolio may purchase or sell foreign currency futures
contracts and foreign currency forward contracts, and may purchase and sell put
and call options on foreign currency futures contracts and on foreign
currencies. In connection with position hedging, the Portfolios may also
purchase or sell foreign currencies on a spot basis.
Although there is no limit to the amount of the Portfolio's assets that may
be invested in foreign currency exchange and foreign currency forward contacts,
the Portfolio will only enter into such transactions to the extent necessary to
effect the hedging transactions described above.
LEVERAGE. The Portfolio may borrow money to invest in additional portfolio
securities. This practice, known as "leverage", increases the Portfolio's market
exposure and its risk and may result in losses. When the Portfolio has borrowed
money for leverage and its investments increase or decrease in value, the
Portfolio's net asset value will normally increase or decrease more than if it
had not borrowed money. The interest the Portfolio must pay on borrowed money
will reduce the amount of any potential gains or increase any losses. The extent
to which the Portfolio will borrow money, and the amount it may borrow, depend
on market conditions and interest rates. Successful use of leverage depends on
Mentor Perpetual's ability to predict market movements correctly.
OPTIONS AND FUTURES. The Portfolio may buy and sell call and put options to
hedge against changes in net asset value or to realize a greater current return.
In addition, through the purchase and sale of futures contracts and related
options, the Portfolio may at times seek to hedge against fluctuations in net
asset value and, to the extent consistent with applicable law, to increase
investment return.
8
<PAGE>
The Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Transactions in options and futures contracts involve brokerage costs and
may require the Portfolio to segregate assets to cover its outstanding
positions. For more information, see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index future"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Portfolio enters into and terminates an index
future or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to increase its investment return.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. OPTIONS AND FUTURES
TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN LOSSES. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by the Portfolio that are the subject of a
hedge. The successful use by the Portfolio of the strategies described above
further depends on the ability of its investment adviser to forecast market
movements correctly. Other risks arise from the Portfolio's potential inability
to close out futures or options positions. Although the Portfolio will enter
into options or futures transactions only if its investment adviser believes
that a liquid secondary market exists for such options or futures contracts,
there can be no assurance that the Portfolio will be able to effect closing
transactions at any particular time or at an acceptable price.
The Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. The Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. The Portfolio's
ability to terminate options in the over-the-counter markets may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of its investment adviser, the pricing
mechanism and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations.
The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolio may enter into
repurchase agreements and securities loans. Under a repurchase agreement, the
Portfolio purchases a debt instrument for a relatively short period (usually not
more than one week), which the seller agrees to repurchase at a fixed time and
price, representing the Portfolio's cost plus interest. Under a securities loan,
the Portfolio lends portfolio securities. The Portfolio will enter into
repurchase agreements and securities loans only with commercial banks and with
registered
9
<PAGE>
broker-dealers who are members of a national securities exchange or market
makers in government securities, and in the case of repurchase agreements, only
if the debt instrument is a U.S. Government security. Although Mentor Perpetual
will monitor these transactions to ensure that they will be fully collateralized
at all times, a Portfolio bears a risk of loss if the other party defaults on
its obligation and the Portfolio is delayed or prevented from exercising its
rights to dispose of the collateral. If the other party should become involved
in bankruptcy or insolvency proceedings, it is possible that the Portfolio may
be treated as an unsecured creditor and be required to return the underlying
collateral to the other party's estate.
YEAR 2000. It is generally recognized that certain computer systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of the software to distinguish the Year 2000 from the
Year 1900. The Portfolio receives services from a number of providers which rely
on the smooth functioning of their respective systems and the systems of others
to perform those services. In addition, the Portfolio's software, that of the
issuers of securities held by the Portfolio and the securities markets generally
could be subject to problems caused by the "Year 2000" problem. Mentor Perpetual
is taking steps that it believes are reasonably designed to address each of
these potential "Year 2000" problems and to obtain satisfactory assurances that
comparable steps are being taken by the Portfolio's other major service
providers. There can be no assurance, however, that these steps will be
sufficient to avoid any adverse impact on the Portfolio from this problem.
MANAGEMENT RISK. Although a Portfolio may have the flexibility to use some
or all of the investment strategies, securities and derivative instruments
described in this prospectus and in the Statement of Additional Information, the
Advisor may choose not to use a particular strategy or type of security for a
variety of reasons. Also, in some market conditions some strategies and
securities may not be available for use. These choices may cause the Portfolio
to miss opportunities, lose money or not achieve its objective.
CHANGES IN INVESTMENT POLICY. Except for investment policies designated in
this Prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. As a matter of policy,
the Trustees will not materially change the Portfolio's investment objective
without shareholder approval. (Any such change could, of course, result in a
change in the nature of the securities in which the Portfolio may invest and the
risks involved in an investment in the Portfolio.)
MANAGEMENT
The Trustees of Mentor Institutional Trust ("the Trust") are responsible
for generally overseeing the conduct of the Trust's business. They have hired
MENTOR PERPETUAL ADVISORS ("MENTOR PERPETUAL"), LLC, located at 901 East Byrd
Street, Richmond, Virginia, to act as investment adviser to the Portfolio. In
1998, Mentor Perpetual received a fee of 1.00% of average net assets for its
advisory services to the International Portfolio. Mentor Investment Group, LLC
("Mentor Investment Group") or Mentor Perpetual may agree to bear certain
expenses of the Portfolio pursuant to voluntary expense limitations from time to
time in effect.
Mentor Investment Advisors, LLC ("Mentor Advisors") is a wholly owned
subsidiary of Mentor Investment Group, LLC ("Mentor Investment Group"), which is
in turn a subsidiary of Wheat First Butcher Singer, Inc. ("Wheat First Butcher
Singer"). Wheat First Butcher Singer is wholly owned subsidiary of First Union
Corp. ("First Union"), a leading financial services company with approximately
$234 billion in assets and $17 billion in total stockholders' equity as of
September 30, 1998. Mentor Advisors and its affiliates serve as investment
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<PAGE>
advisers to over twenty separate investment portfolios in the Mentor Family of
Funds, with total assets under management of more than $15 billion.
Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc and Mentor Advisors. The Perpetual organization
currently serves as investment adviser for assets of more than $14 billion. Its
clients include 28 unit investment trusts and other public investment pools,
including private individuals, charities, pension plans, and life assurance
companies. Mentor Perpetual currently serves as investment adviser to the Mentor
Perpetual Global Portfolio, an open-end mutual fund which is a series of Mentor
Funds. Investment decisions for the International Portfolio are made by a team
of investment professionals.
Subject to the general oversight of the Trustees, Mentor Perpetual manages
the Portfolio in accordance with the stated policies of the Portfolio. Mentor
Perpetual makes investment decisions for the Portfolio and places the purchase
and sale orders for the Portfolio's portfolio transactions. In selecting
broker-dealers, Mentor Perpetual may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best overall terms
available, Mentor Perpetual may consider sales of shares of the Portfolio (and,
if permitted by law, of other funds in the Mentor family) as a factor in the
selection of broker-dealers to execute portfolio transactions for the Portfolio.
Mentor Perpetual may at times cause the Portfolio to pay commissions to
broker-dealers which are affiliated with Mentor Perpetual.
HOW THE PORTFOLIO VALUES ITS SHARES
The Portfolio calculates the net asset value of a share of each class by
dividing the total value of its assets attributable to that class, less
liabilities attributable to that class, by the number of shares of the class
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values. The net asset value of shares of different classes will generally differ
due to the variance in daily net income realized by and dividends paid on each
class, and any differences in the expenses of different classes.
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rates or at such other rates as may be used in accordance
with procedures approved by the Trustees. As a result, fluctuations in the
values of such currencies in relation to the U.S. dollar will affect the net
asset value of Portfolio shares even though there has not been any change in the
values of such securities as quoted in such foreign currencies. All assets and
liabilities of the Portfolio denominated in foreign currencies are valued in
U.S. dollars based on the exchange rate last quoted by a major bank prior to the
time when the net asset value of the Portfolio's shares is calculated. Because
certain of the securities in which the Portfolio may invest may trade on days
when the Portfolio does not price its shares, the net asset value of the
Portfolio's shares may change on days when shareholders will not be able
to purchase or redeem their shares.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of a particular class of shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds) are determined based on market quotations collected earlier
in the day at the
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<PAGE>
latest practicable time prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
following procedures approved by the Trustees.
SALES ARRANGEMENTS
This Prospectus offers investors two classes of shares which bear sales
charges in different forms and amounts and which bear different levels of
expenses:
CLASS A SHARES. An investor who purchases Class A shares pays a sales
charge at the time of purchase. As a result, Class A shares are not subject to
any charges when they are redeemed, except that sales at net asset value in
excess of $1 million are subject to a contingent deferred sales charge (a
"CDSC"). Certain purchases of Class A shares qualify for reduced sales charges.
Class A shares currently bear no 12b-1 fees. See "How to buy shares -- Class A
shares."
CLASS B SHARES. Class B shares are sold without an initial sales charge,
but are subject to a CDSC of up to 4% if redeemed within five years. Class B
shares also bear 12b-1 fees. Class B shares provide an investor the benefit of
putting all of the investor's money to work from the time the investment is
made, but have a higher expense ratio and pay lower dividends than Class A
shares due to the 12b-1 fees. If you purchase shares through an asset-allocation
program, you may also be eligible to purchase Class B shares through the "BL
Purchase Program." See "How to buy shares -- Class B shares."
WHICH ARRANGEMENT IS FOR YOU? The decision as to which class of shares
provides a suitable investment for an investor depends on a number of factors,
including the amount and intended length of the investment. Investors making
investments that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge might consider
Class B shares. Investors purchasing shares through an asset-allocation program
may wish to purchase shares through the BL Purchase Program. For more
information about these sales arrangements, consult your investment dealer or
Mentor Services Company, Inc. Sales personnel may receive different compensation
depending on which class of shares they sell. Investors may be charged a fee if
they effect transactions through a broker or agent. Shares may only be exchanged
for shares of the same class of certain other funds in the Mentor family and for
shares of Cash Resource U.S. Government Money Market Fund. See "How to exchange
shares."
HOW TO BUY SHARES
You can open a Portfolio account with as little as $1,000 and make
additional investments at any time with as little as $100. Investments under
IRAs and qualified retirement plans are subject to a minimum initial investment
of $250. The minimum initial investment may be waived for current and retired
Trustees, and current and retired employees of the Trust, Mentor Investment
Group, or its affiliates. You can buy Portfolio's shares BY COMPLETING THE
ENCLOSED NEW ACCOUNT FORM and sending it to Boston Financial Data Services
("BFDS") at 2 Heritage Drive, North Quincy, Massachusetts 02171 along with a
check or money order made payable to Mentor Institutional Trust, THROUGH YOUR
FINANCIAL INSTITUTION, which may be an investment dealer, a bank, or another
institution, or THROUGH AUTOMATIC INVESTING. If you do not have a dealer, Mentor
Services Company, Inc. can refer you to one.
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<PAGE>
AUTOMATIC INVESTMENT PLAN. Once you have made the initial minimum
investment in the Portfolio, you can make regular investments of $50 or more on
a monthly or quarterly basis through automatic deductions from your bank
checking account. Application forms are available from your investment dealer or
through Mentor Services Company, Inc.
Shares are sold at a price based on the Portfolio's net asset value for
each class next determined after Mentor Distributors, LLC, the Portfolio's
distributor ("Mentor Distributors"), receives your purchase order. In most
cases, in order to receive that day's public offering price, Mentor Distributors
must receive your order before the close of regular trading on the New York
Stock Exchange. If you buy shares through your investment dealer, the dealer
must ensure that Mentor Distributors receives your order before the close of
regular trading on the New York Stock Exchange for you to receive that day's
public offering price.
CLASS A SHARES. The public offering price of Class A shares is the net
asset value plus a sales charge. The Portfolio receives the net asset value. The
sales charge varies depending on the size of your purchase and is allocated
between your investment dealer and Mentor Distributors. The current sales
charges for Class A shares of the Portfolio are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
PUBLIC OFFERING NET AMOUNT DEALER
PRICE INVESTED COMMISSION*
----------------- ---------------- ------------
<S> <C> <C> <C>
Less than $50,000.......................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000 ............ 4.75% 4.99% 4.00%
$100,000 but less than $250,000 ........... 3.75% 3.90% 3.00%
$250,000 but less than $500,00 ............ 3.00% 3.09% 2.50%
$500,000 but less than $1 million ......... 2.00% 2.04% 1.75%
$1 million or more ........................ 0% 0% (see below)
</TABLE>
- ----------
* At the discretion of Mentor Distributors the entire sales charge may at times
be reallowed to dealers. The Staff of the Securities and Exchange Commission
has indicated that dealers who receive more than 90% of the sales charge may
be considered underwriters.
There is no initial sales charge on purchases of Class A shares of $1
million or more. However, a CDSC of 1.00% is imposed on redemptions of such
shares within the first year after purchase, based on the lower of the shares'
cost and current net asset value. A CDSC is also imposed on any shares purchased
without a sales charge as part of a purchase of shares of $1 million or more
under a purchase accumulation plan. Contact Mentor Services Company, Inc. for
more information.
You may be eligible to buy Class A shares at reduced sales charges. Consult
your investment dealer or Mentor Services Company for details about Quantity
Discounts and Accumulated Purchases, Letters of Intent, the Reinvestment
Privilege, Concurrent Purchases, and the Automatic Investment Plan. Descriptions
are also included in the New Account Form or are available from Mentor Services
Company. Shares may be sold at net asset value to certain categories of
investors, including to shareholders of other investment companies who invest in
the Portfolio in response to certain promotional activities, and the CDSC may be
waived under certain circumstances. The sales charges shown above will not apply
to shares purchased by you if you purchase shares through EVEREN Securities,
Inc, with the proceeds received by you within the preceding 90 days from the
sale
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of shares of most non-Mentor investment companies and, to the extent permitted
by applicable law, real estate investment trusts. No CDSC will apply to these
purchases. EVEREN Securities, Inc. Mentor Distributors, Mentor Services Company
or their affiliates may compensate your investment dealer in connection with any
such purchase in an amount equal to a percentage of the purchase price of the
shares. The amount of such compensation, and the portion paid by Mentor
Distributors, Mentor Services Company, or their affiliates, will vary from time
to time. Sales charges may similarly not apply to shares purchased through
financial institutions affiliated with Mentor Investment Group or other
financial institutions that have made arrangements with Mentor Distributors.
Contact your financial institution or Mentor Services Company for more
information. See "How to buy shares -- General" below.
CLASS B SHARES. Class B shares are sold without an initial sales charge,
although a CDSC will be imposed if you redeem shares within five years of
purchase. The following types of shares may be redeemed without charge: (i)
shares acquired by reinvestment of distributions and (ii) shares otherwise
exempt from the CDSC, as described in the Example below. The amount of CDSC is
determined as a percentage of the lesser of the current market value or the cost
of the shares being redeemed. In determining whether a CDSC is payable in
respect of the shares redeemed, the Portfolio will first redeem the shares held
longest (together with any shares received upon reinvestment of distributions
with respect to those shares). Any of the shares being redeemed which were
acquired by reinvestment of distributions will be redeemed without a CDSC, and
amounts representing capital appreciation will not be subject to a CDSC. The
amount of the CDSC will depend on the number of years since you invested in the
shares being redeemed and the dollar amount being redeemed, according to the
following table:
<TABLE>
<CAPTION>
YEARS SINCE PURCHASE PAYMENT MADE CDSC
- ----------------------------------- ---------
<S> <C>
Up to 1 4.0%
Up to 2 4.0%
Up to 3 3.0%
Up to 4 2.0%
Up to 5 1.0%
5+ None
</TABLE>
THE BL PURCHASE PROGRAM. If you purchase Class B shares through an
asset-allocation program sponsored by your broker-dealer or other financial
institution, you may elect to participate in the BL Purchase Program. Shares
purchased through this program are not subject to the CDSC shown above. Rather,
a CDSC of 1.00% will be imposed on redemptions of such shares within the first
year after purchase, based on the lower of the shares' cost and current net
asset value. Your broker-dealer or other financial institution is responsible
for making the election on your behalf to invest through the Program.
Accordingly, if you wish to purchase shares through this Program, you should
instruct your broker-dealer or financial institution to do so.
GENERAL. Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus,
Ohio 43219, serves as distributor of the Portfolio's shares. Mentor Distributors
is not obligated to sell any specific amount of shares of the Portfolio.
The Portfolio may sell its Class A shares without a sales charge and may
waive the CDSC on shares redeemed by the Trust's current and retired Trustees
(and their families), current and retired employees (and their
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<PAGE>
families) of Mentor Distributors. Mentor Perpetual, and their affiliates,
registered representatives and other employees (and their families) of
broker-dealers having sales agreements with Mentor Distributors, employees (and
their families) of financial institutions having sales agreements with Mentor
Distributors (or otherwise having an arrangement with a broker-dealer or
financial institution with respect to sales of Portfolio shares), financial
institution trust departments investing an aggregate of $1 million or more in
one or more funds in the Mentor family, clients of certain administrators of
tax-qualified plans, employer-sponsored retirement plans, tax-qualified plans
when proceeds from repayments of loans to participants are invested (or
reinvested) in funds in the Mentor family, shares redeemed under the Portfolio's
Systematic Withdrawal Plan (limited to 10% of a shareholder's account in any
calendar year), and "wrap accounts" for the benefit of clients of financial
planners adhering to certain standards established by Mentor Distributors or
Mentor Investment Group or its affiliates. The Portfolio may sell shares without
a sales charge or a CDSC in connection with the acquisition by the Portfolio of
assets of an investment company or personal holding company. In addition, the
CDSC may be waived in the case of (i) redemptions of shares held at the time a
shareholder dies or becomes disabled, including the shares of a shareholder who
owns the shares with his or her spouse as joint tenants with right of
survivorship, provided that the redemption is requested within one year of the
death or initial determination of disability; (ii) redemptions in connection
with the following retirement plan distributions: (a) lump-sum or other
distributions from a qualified retirement plan following retirement, (b)
distributions from an IRA, Keogh Plan, or Custodial Account under Section
403(b)(7) of the Internal Revenue Code following attainment of age 59 1/2, and
(c) a tax-free return on an excess contribution to an IRA; (iii) redemptions by
pension or profit sharing plans sponsored by Mentor Investment Group or an
affiliate; and (iv) redemptions by pension or profit sharing plans of which
Mentor Investment Group or any affiliate serves as a plan fiduciary. In
addition, certain retirement plans with over 200 employees may purchase Class A
shares at net asset value without a sales charge. The Portfolio may sell its
Class A shares without a sales charge to shareholders of other mutual funds who
invest in other funds in the Mentor family in response to certain promotional
activities (in which case a CDSC of 1% may apply for a period of years after
purchase). Contact Mentor Services Company, Inc. for more information. If you
invest through a broker-dealer or other financial institution, your
broker-dealer or other financial institution will be responsible for electing on
your behalf to take advantage of any of these reduced sales charges or waivers
described above. Please instruct your broker-dealer or other financial
institution accordingly.
Shareholders of other funds in the Mentor family may be entitled to
exchange their shares for, or reinvest distributions from their funds in, shares
of the Portfolio at net asset value. See "How to exchange shares." In
determining whether a CDSC is payable in respect of the shares redeemed, the
Portfolio will first redeem the shares held longest (together with any shares
received upon reinvestment of distributions with respect to those shares). Any
of the shares being redeemed which were acquired by reinvestment of
distributions will be redeemed without a CDSC, and amounts representing capital
appreciation will not be subject to a CDSC. See the Example below.
EXAMPLE:
You have purchased 100 Class B shares at $10 per share. The second year
after your purchase, your investment's net asset value per share has increased
by $2 to $12, and you have gained 10 additional shares through dividend
reinvestment. If you redeem 50 of those shares (including share purchased
through reinvestment of distributions on those 100 shares) at this time, your
CDSC will be calculated as follows:
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<PAGE>
<TABLE>
<S> <C> <C>
-- Proceeds of 50 shares redeemed at $12 per share $ 600
-- Minus proceeds of 10 shares not subject to a CDSC because they were
acquired through dividend reinvestment (10 x $12) -120
-- Minus appreciation on remaining shares, also not subject to CDSC (40 x $2) -80
-----
-- Amount subject to a CDSC $ 400
</TABLE>
Mentor Distributors receives the entire amount of any CDSC you pay. Consult
Mentor Distributors for more information.
If you are considering redeeming or exchanging shares of the Portfolio or
transferring shares to another person shortly after purchase, you should pay for
those shares with a certified check to avoid any delay in redemption, exchange,
or transfer. Otherwise the Portfolio may delay payment until the purchase price
of those shares has been collected or, if you redeem by telephone, until 15
calendar days after the purchase date.
Because of the relatively high cost of maintaining accounts, the Portfolio
reserves the right to redeem, upon not less than 60 days' notice, any Portfolio
account below $500 as a result of redemptions. A shareholder may, however, avoid
such a redemption by the Portfolio by increasing his investment in shares of the
Portfolio to a value of $500 or more during such 60-day period.
Mentor Distributors, Mentor Perpetual, and affiliates thereof, at their own
expense and out of their own assets, may also provide other compensation to
dealers in connection with sales of shares of the Portfolio. Compensation may
also include, but is not limited to, financial assistance to dealers in
connection with conferences, sales, training programs for their employees,
seminars for the public, advertising or sales campaigns, or other
dealer-sponsored special events. In some instances, this compensation may be
available only to certain dealers whose representatives have sold or are
expected to sell significant amounts of shares. Dealers may not use sales of the
Portfolio's shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. Certain dealers may not sell
all classes of shares.
In all cases Mentor Perpetual or Mentor Distributors reserves the right to
reject any particular investment.
REINVESTMENT PRIVILEGE. If you redeem Class A or B shares of the Portfolio,
you have a one-time right, within 60 days, to reinvest the redemption proceeds
plus the amount of CDSC you paid, if any, at the next determined net asset
value. Front-end sales charges will not apply to such reinvestment. Mentor
Distributors must be notified in writing by you or by your financial institution
of the reinvestment for you to recover the CDSC, or to eliminate the front-end
sales charge. If you redeem shares in the Portfolio, there may be tax
consequences.
DISTRIBUTION PLAN (CLASS B SHARES)
Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, is the principal distributor for the Portfolio's shares. Mentor
Distributors is not obligated to sell any specific amount of shares of the
Portfolio.
The Portfolio has adopted a Distribution Plan under Rule 12b-1 with respect
to its Class B shares (the "Plan") providing for payments by the Portfolio to
Mentor Distributors from the assets attributable to the Portfolio's Class B
shares at the annual rate set out under "Expense Summary -- Annual Portfolio
Operating Expenses"
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<PAGE>
above. Because these fees are paid out of the Portfolio's assets on an ongoing
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges. The Trustees may reduce
the amount of payments or suspend the Plan for such periods as they may
determine. Mentor Distributors also receives the proceeds of any CDSC imposed on
redemptions of shares.
Payments under the Plan are intended to compensate Mentor Distributors for
services provided and expenses incurred by it as principal underwriter of the
Portfolio's Class B shares. Mentor Distributors may select financial
institutions (such as a broker/dealer or bank) to provide sales support services
as agents for their clients or customers who beneficially own Class B shares of
the Portfolio. Financial institutions will receive fees from Mentor Distributors
based upon Class B shares owned by their clients or customers. The schedules of
such fees and the basis upon which such fees will be paid will be determined
from time to time by Mentor Distributors. Mentor Distributors may suspend or
modify such payments to dealers. Such payments are also subject to the
continuation of the Plan, the terms of any agreements between dealers and
Mentors Distributors, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.
Mentor Services Company, Inc. provides marketing-related services in
respect of the Portfolio. Mentor Services Company, Inc. and its affiliates will
receive from Mentor Distributors substantially all amounts received or retained
by Mentor Distributors in respect of the marketing of the Portfolio's shares,
including any amounts paid to Mentor Distributors under the Distribution Plan.
HOW TO SELL SHARES
You can sell your shares to the Portfolio any day the New York Stock
Exchange is open, either directly to the Portfolio or through your investment
dealer. The Portfolio will only redeem shares for which it has received payment.
SELLING SHARES DIRECTLY TO THE PORTFOLIO. Send a signed letter of
instruction and stock power form, along with any certificates that represent
shares you want to sell, to Mentor Institutional Trust, c/o Boston Financial
Data Services, Inc., 2 Heritage Drive, North Quincy, Massachusetts 02171. The
price you will receive is the net asset value per share of the relevant class of
shares next calculated after your request is received in proper form less any
applicable CDSC. In order to receive that day's net asset value, your request
must be received before the close of regular trading on the New York Stock
Exchange. If you sell shares having a net asset value of $50,000 or more or if
you want your redemption proceeds payable to you at a different address or to
someone else, the signatures of registered owners or their legal representatives
must be guaranteed by a bank, broker-dealer, or certain other financial
institutions. Contact Mentor Services Company, Inc. for more information about
where to obtain a signature guarantee. Stock power forms are available from your
investment dealer, Mentor Services Company, Inc., and many commercial banks.
Mentor Distributors usually requires additional documentation for the sale of
shares by a corporation, partnership, agent, fiduciary, or surviving joint
owner. Contact Mentor Services Company, Inc. for details.
SELLING SHARES BY TELEPHONE. You may use Mentor's Telephone Redemption
Privilege to redeem shares from your account unless you have notified Mentor
Services Company, Inc. of an address change within the preceding 15 days. Unless
an investor indicates otherwise on the new Account Form, Mentor Distributors
will be authorized to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as his or her
representative, who can provide Mentor Distributors with his or her account
17
<PAGE>
registration and address as it appears on Mentor Distributors' records. Mentor
Distributors will employ these and other reasonable procedures to confirm that
instructions communicated by telephone are genuine; if it fails to employ
reasonable procedures, Mentor Distributors may be liable for any losses due to
unauthorized or fraudulent instructions. For more information, consult Mentor
Services Company, Inc. During periods of unusual market changes and shareholder
activity, you may experience delays in contacting Mentor Services Company, Inc.
by telephone in which case you may wish to submit a written redemption request,
as described above, or contact your investment dealer, as described below. The
Telephone Redemption Privilege may be modified or terminated without notice.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer and Mentor
Distributors must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. Your dealer
will be responsible for furnishing all necessary documentation to Mentor
Distributors, and may charge you for its services.
SYSTEMATIC WITHDRAWAL PROGRAM. You may redeem Class A or B shares of the
Portfolio through periodic withdrawals for a predetermined amount. Only
shareholders with accounts valued at $10,000 or more are eligible to
participate. Class B shares redeemed under the Systematic Withdrawal Program are
not subject to a CDSC, but the aggregate withdrawals of Class B shares in any
year are limited to 10% of the value of the account at the time of enrollment.
Contact Mentor Services Company, Inc. for more information.
GENERAL. The Portfolio generally sends you payment for your shares the
business day after your request is received. Under unusual circumstances, the
Portfolio may suspend redemptions, or postpone payment for more than seven days,
as permitted by federal securities law.
The Portfolio reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption by making payment in
whole or in part in securities valued in the same way as they would be valued
for purposes of computing the Portfolio's per share net asset value. If payment
is made in securities, a shareholder may incur brokerage expenses in converting
those securities into cash.
HOW TO EXCHANGE SHARES
Except as otherwise described below, you can exchange your shares in the
Portfolio worth at least $1,000 for shares of the same class of certain
Portfolios of Mentor Funds, a series investment company offering shares of
investment portfolios with different investment objectives and policies, at net
asset value beginning 15 days after purchase. You may also exchange shares of
the Portfolio for shares of Cash Resource U.S. Government Money Market Fund (the
"Cash Fund"). If you exchange share subject to a CDSC, the transaction will not
be subject to a CDSC. However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending upon when you
originally purchased the shares, using the schedule of the Portfolio from which
your first exchange was effected. For purposes of computing the CDSC, the length
of time you have owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
To exchange your shares, contact Mentor Services Company, Inc. For federal
income tax purposes, an exchange is treated as a sale of shares and generally
results in a capital gain or loss. A Telephone Exchange Privilege is currently
available. Mentor Distributors' procedures for telephonic transactions are
described above under "How to sell shares -- Selling shares by telephone." The
Telephone Exchange Privilege is not available
18
<PAGE>
if you were issued certificates for shares which remain outstanding. Ask your
investment dealer or Mentor Services Company, Inc. for a prospectus relating to
Mentor Funds or the Cash Fund. Shares of certain of the Portfolios may not be
available to residents of all states.
The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where Mentor Distributors or the Trustees
believe doing so would be in the best interests of the Portfolio, the Portfolio
reserves the right to revise or terminate the exchange privilege, limit the
amount or number of exchanges, or reject any exchange. Shareholders would be
notified of any such action to the extent required by law. Consult Mentor
Services Company, Inc. before requesting an exchange by calling 1-800-382-0016.
See the Statement of Additional Information to find out more about the exchange
privilege.
OTHER SERVICES
SHAREHOLDER SERVICING PLAN. The Trust has adopted a Shareholder Servicing
Plan (the "Service Plan") with respect to the Class A and Class B shares of the
Portfolio. Under the Service Plan, financial institutions will enter into
shareholder service agreements with Mentor Investment Group or the Trust to
provide administrative support services to their customers who are Portfolio
shareholders. In return for providing these support services, a financial
institution may receive payments at a rate not exceeding 0.25% of the average
daily net assets of the Class A or Class B shares of the Portfolio. These
administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer personnel, as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Portfolio; assisting clients in changing dividend options, account designations,
and addresses; and providing such other services as the Portfolio reasonably
requests.
In addition to receiving payments under the Service Plan, financial
institutions may be compensated by Mentor Perpetual and/or Mentor Investment
Group, or affiliates thereof, for providing administrative support services to
holders of Class A or Class B shares of the Portfolio. These payments will be
made directly by Mentor Perpetual and/or Mentor Investment Group and will not be
made from the assets of the Portfolio.
HOW DISTRIBUTIONS ARE MADE
The Portfolio distributes net investment income and any net realized
capital gains at least annually. Distributions from capital gains are made after
applying any available capital loss carryovers.
All Portfolio distributions will be invested in additional Portfolio shares
of the same class, unless the shareholder instructs a Portfolio otherwise.
TAXES
The Portfolio will distribute substantially all of its net investment
income and capital gain net income on a current basis.
19
<PAGE>
Distributions of net investment income and short-term capital gains are
taxable as ordinary income. Distributions of capital gain on assets held more
than 12 months will be taxable as capital gains. Distributions are taxable
whether received in cash or reinvested in additional shares. DISTRIBUTIONS ARE
TAXABLE TO A SHAREHOLDER EVEN IF THEY ARE PAID FROM INCOME OR GAINS EARNED BY
THE PORTFOLIO PRIOR TO THE SHAREHOLDER'S INVESTMENT AND THUS WERE INCLUDED IN
THE PRICE PAID BY THE SHAREHOLDER.
Any gain resulting from the sale or exchange of your shares generally also
will be subject to tax. Distributions and transactions in shares may also be
subject to state and local taxes. The nature of the Portfolio's distributions
will be affected by its investment strategies. If the Portfolio's investment
return consists largely of interest, dividends and capital gains from short-term
holdings, it will distribute largely ordinary income. If the Portfolio's return
comes largely from the sale of long-term holdings, it will distribute largely
long-term capital gains.
Shareholders of the Portfolio who are U.S. citizens or residents may be
able to claim a foreign tax credit or deduction on their U.S. income tax returns
with respect to foreign taxes paid by the Portfolio. If, at the end of the
fiscal year of the Portfolio, more than 50% of the Portfolio's total assets are
represented by stock or securities of foreign corporations, the Portfolio
intends to make an election permitted by the Internal Revenue Code to treat any
eligible foreign taxes that were paid by the Portfolio as paid by its
shareholders. In that case, shareholders will be required to include in U.S.
taxable income their pro rata share of such taxes, but may then be entitled to
claim a foreign tax credit or deduction (but not both) for their share of such
taxes. The Portfolio's investments in foreign securities may be subject to
foreign withholding taxes. In that case, the Portfolio's yield on those
securities would be decreased. In addition, the Portfolio's investments in
foreign securities or foreign currencies may increase or accelerate the
Portfolio's recognition of ordinary income and may affect the timing or amount
of the Portfolio's distributions.
The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. Dividends and distributions also may be subject to
state, local and foreign taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state, local, or foreign
taxes. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of a Portfolio, including the possibility
that distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
20
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolio's financial performance for the period of its operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. Their report dated December 18, 1998 on the
financial statements of the Trust for the fiscal year ended October 31, 1998 is
included in the Portfolio's Annual Report to shareholders, which is incorporated
into the Statement of Additional Information by reference. A copy of the Annual
Report may be obtained free of charge from the Trust.
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS A SHARES
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/98 10/31/97 (B)
------------ -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 13.83 $ 12.53
======== ==========
INCOME FROM INVESTMENT OPERATIONS
Net investment income ........................................... 0.11 0.01
Net realized and unrealized gain on investments ................. 0.91 1.29
-------- ----------
Total from investment operations ................................ 1.02 1.30
-------- ----------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.03) --
Capital gains ................................................... (0.03) --
Tax return of capital ........................................... (0.14) --
-------- ----------
Total distributions ............................................. (0.20) --
-------- ----------
NET ASSET VALUE, END OF PERIOD ................................... $ 14.65 $ 13.83
======== ==========
Total Return* .................................................... 7.43% 10.38%
======== ==========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......................... $ 62,782 $ 33,213
Ratio of expenses to average net assets .......................... 1.35% 1.35% (a)
Ratio of expenses to average net assets excluding waiver ......... 1.68% 1.92% (a)
Ratio of net investment income to average net assets ............. 0.96% 0.71% (a)
Portfolio turnover rate .......................................... 120% 107%
======== ==========
</TABLE>
- ----------
(a) Annualized.
(b) For the period from December 27, 1996 (initial offering of Class A shares)
to October 31, 1997.
* Total return does not reflect sales commission and is not annualized.
See notes to financial statements.
21
<PAGE>
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS B SHARES
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
10/31/98 10/31/97 (C)
------------ -------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 13.81 $ 12.53
======== ==========
INCOME FROM INVESTMENT OPERATIONS
Net investment income ........................................... 0.03 --
Net realized and unrealized gain on investments ................. 0.88 1.28
-------- ----------
Total from investment operations ................................ 0.91 1.28
-------- ----------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.03) --
Capital gains ................................................... (0.03) --
Tax return of capital ........................................... (0.14) --
-------- ----------
Total distributions ............................................. (0.20) --
-------- ----------
NET ASSET VALUE, END OF PERIOD ................................... $ 14.52 $ 13.81
======== ==========
Total Return* .................................................... 6.64% 10.22%
======== ==========
RATIOS / SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......................... $ 42,354 $ 19,371
Ratio of expenses to average net assets .......................... 2.10% 2.10% (a)
Ratio of expenses to average net assets excluding waiver ......... 2.43% 2.65% (a)
Ratio of net investment income to average net assets ............. 0.21% 0.04% (a)
Portfolio turnover rate .......................................... 120% 107%
======== ==========
</TABLE>
- ----------
(a) Annualized.
(c) For the period from December 27, 1996 (initial offering of Class B shares)
to October 31, 1997.
* Total return does not reflect sales commission and is not annualized.
See notes to financial statements.
22
<PAGE>
THE TRUST'S STATEMENT OF ADDITIONAL INFORMATION (SAI) AND ANNUAL AND
SEMI-ANNUAL REPORTS TO SHAREHOLDERS INCLUDE ADDITIONAL INFORMATION ABOUT THE
PORTFOLIO. THE SAI AND THE FINANCIAL STATEMENTS INCLUDED IN THE PORTFOLIO'S MOST
RECENT ANNUAL REPORT TO SHAREHOLDERS IS INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS, WHICH MEANS IT IS PART OF THIS PROSPECTUS FOR LEGAL PURPOSES. THE
PORTFOLIO'S ANNUAL REPORT DISCUSSES THE MARKET CONDITIONS AND INVESTMENT
STRATEGIES THAT SIGNIFICANTLY AFFECTED THE PORTFOLIO'S PERFORMANCE DURING ITS
LAST FISCAL YEAR. YOU MAY GET FREE COPIES OF THESE MATERIALS, REQUEST OTHER
INFORMATION ABOUT A PORTFOLIO, OR MAKE SHAREHOLDER INQUIRIES BY CALLING
1-800-382-0016.
YOU MAY REVIEW AND COPY INFORMATION ABOUT THE TRUST, INCLUDING ITS SAI,
AT THE SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. YOU MAY CALL THE COMMISSION AT 1-800-SEC-0330 FOR INFORMATION ABOUT THE
OPERATION OF THE PUBLIC REFERENCE ROOM. YOU MAY ALSO ACCESS REPORTS AND OTHER
INFORMATION ABOUT THE TRUST ON THE COMMISSION'S INTERNET SITE AT
HTTP://WWW.SEC.GOV. YOU MAY GET COPIES OF THIS INFORMATION, UPON PAYMENT OF
COPYING COSTS, BY WRITING THE PUBLIC REFERENCE SECTION OF THE COMMISSION,
WASHINGTON, D.C. 20549-6009. YOU MAY NEED TO REFER TO THE TRUST'S FILE NUMBER
UNDER THE INVESTMENT COMPANY ACT, WHICH IS 811-8484.
MENTOR PERPETUAL
INTERNATIONAL
PORTFOLIO
-------------------------
PROSPECTUS
CLASS A AND B SHARES
-------------------------
March 1, 1999
[MENTOR INVESTMENT GORUP LOGO]
<PAGE>
P R O S P E C T U S March 1, 1999
Class E Shares
Mentor Perpetual International Portfolio
o Seeking long-term capital appreciation by investing in a diversified
portfolio of equity securities of issuers outside the United States.
o Advisor: Mentor Perpetual Advisors, LLC ("Mentor Perpetual")
An investment in shares of the Portfolio offered by this Prospectus is
designed for institutional and high net-worth individual investors who invest or
maintain their accounts in the Portfolio with the assistance of a broker-dealer,
financial consultant, or similar service provider.
You can call Mentor Services Company, Inc. at (800) 382-0016 to find out
more about the Portfolio and other mutual funds in the Mentor family.
The prospectus explains what you should know about the Portfolio before you
invest. Please read it carefully.
----------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED ON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary Information ................................ 3
Expense Summary .................................... 5
Principal Investment Strategies and Risks .......... 6
Other Investments and Risks ........................ 7
Management ......................................... 10
How the Portfolio Values Its Shares ................ 10
Purchase of Shares ................................. 11
Other Services ..................................... 12
Redemption of Shares ............................... 13
How Distributions Are Made ......................... 14
Taxes .............................................. 14
Financial Highlights ............................... 16
</TABLE>
2
<PAGE>
SUMMARY INFORMATION
The Portfolio is a diversified investment portfolio of Mentor Institutional
Trust. The following summary describes the Portfolio's investment objective and
principal investment strategies and identifies the principal risks of investing
in the Portfolio.
Below the Portfolio's description is a bar chart which provides some
indication of the risks of investing in the Portfolio by showing how the
investment returns of the Portfolio's Class Y (Institutional) shares have varied
in the period since they were first offered. (Class Y returns are shown because
Class E shares do not yet have a full calendar year of performance). The table
following the bar chart shows how the Portfolio's average annual returns for the
last year and for the life of the Portfolio compared to returns of a comparable
index, generally a broad-based securities market index. Past performance is not
necessarily an indication of future performance. It is possible to lose money on
investments in the Portfolio.
o INVESTMENT OBJECTIVE. Long-term capital appreciation.
o PRINCIPAL INVESTMENT STRATEGIES. The Portfolio seeks to invest in
companies, large or small, where earnings are believed to be in a relatively
strong growth trend, or where significant further growth is not anticipated but
where the shares are thought to be undervalued. The Portfolio will normally
invest a substantial portion of its assets in securities of smaller companies
and may at times invest a substantial portion of its assets in issuers located
in emerging markets. In identifying candidates for investment, Mentor Perpetual
considers a variety of factors, including the likelihood of above average
earnings growth, attractive relative valuation, and whether the company has any
proprietary advantages. Mentor Perpetual may also conduct discussions with
management, visit the premises of issuers and analyze industry and market trends
in order to select its investments. The Portfolio's investments will normally
include a diversified portfolio of equity securities of issuers located outside
the United States, such as common stocks, preferred stocks, securities
convertible into common stocks or preferred stocks, and warrants to purchase
common stocks or preferred stocks. The Portfolio may invest to a lesser extent
in debt securities if Mentor Perpetual believes they would help achieve the
Portfolio's objective. When it chooses to invest in debt, the Portfolio seeks to
maintain relatively high average credit quality but may vary its maturity. To
this end, it will only invest in debt securities which are of investment grade.
Mentor Perpetual will adjust the maturity of the Portfolio in response to
changing market conditions.
o PRINCIPAL RISKS.
o EQUITY SECURITIES. A risk of investing in the Portfolio is the risk
that the value of the equity securities in the portfolio will fall, or will
not appreciate as anticipated by Mentor Perpetual, due to factors that
adversely affect markets in general or particular companies in the portfolio.
The Portfolio is more sensitive to this risk because it may invest a
substantial portion of its assets in smaller companies.
o FOREIGN SECURITIES. Investments in foreign securities entail risks not
present in domestic investments including, among other things, risks related
to political or economic instability, currency exchange and taxation.
o EMERGING MARKET SECURITIES. Investments in emerging markets are subject
to the same risks applicable to foreign investments generally but to a
greater extent. For example, the securities markets and legal systems in
emerging markets may provide few, or none, of the advantages or protections
of markets or legal systems available in more developed countries. Many of
the securities in which the Portfolio may invest
3
<PAGE>
may trade in limited volume and may be illiquid. Exchanges, if any, on which
they trade may not provide all of the conveniences or protections provided by
securities exchanges in more developed markets.
o SMALLER COMPANIES. The Portfolio may invest a substantial portion of
its assets in smaller companies, which tend to be more vulnerable to adverse
developments than larger companies. Smaller companies may have limited
product lines, markets, or financial resources, or may depend on a limited
management group. Their securities may trade infrequently and in limited
volumes. As a result, the prices of these securities may fluctuate more than
the prices of securities of larger, more widely traded companies.
o DEBT SECURITIES. The Portfolio invests in debt securities, which are
subject to market risk (the fluctuation of market value in response to
changes in interest rates) and to credit risks (the risk that the issuer may
become unable or unwilling to make timely payments of principal and interest.
Securities rated Baa or BBB lack outstanding investment characteristics and
have speculative characteristics and are subject to greater credit and market
risks than higher-rated securities. When interest rates rise, the values of
fixed income securities held by the Portfolio declines. The longer the
maturity of a security, the more its value will decline when interest rates
rise. Although the Portfolio will only purchase securities which meet its
credit guidelines at the time of purchase, it will not necessary sell
securities which are downgraded after purchase.
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO -- CLASS Y (INSTITUTIONAL) SHARES
[GRAPH]
Calendar Year End Annual Return
1997 10.60%
1998 13.53%
The returns shown above are for a class, Class Y (Institutional) shares,
which is not offered in this prospectus (because Class E shares have not been
outstanding for a full calendar year). However, the shares are invested in the
same portfolio of securities and the returns will only differ to the extent that
Classes Y and E do not have the same expenses. Because operating expenses
attributable to Class E shares are expected to be higher than those attributable
to Class Y shares, investment returns are expected to be lower for Class E
shares.
During the periods shown above, the highest quarterly return was 16.89% for
the quarter ended December 31, 1998, and the lowest was (15.02)% for the quarter
ended September 30, 1998.
4
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS LIFE OF PORTFOLIO
(FOR PERIODS ENDING DECEMBER 31, 1998) PAST YEAR (SINCE 5/29/96)
- ----------------------------------------------------- ----------- -------------------
<S> <C> <C>
Perpetual International Portfolio (Class Y) ......... 13.53% 9.82%
Morgan Stanley Capital
International EAFE Index* .......................... 20.33% 9.20%
</TABLE>
- ----------
* The Morgan Stanley Capital International EAFE Index is an unmanaged index
composed of approximately 1,119 securities issued by foreign companies listed
on Europe, Australia & Far East (EAFE) stock exchanges. This is a total return
index with gross dividends reinvested. The performance of countries and
unmanaged indexes does not reflect expenses and may not correspond to the
performance of the Portfolio, which is actively managed and incurs expenses.
EXPENSE SUMMARY
Expenses are one of several factors to consider when investing in the
Portfolio. Expenses shown are based on expenses incurred in respect of Class E
Shares of the Portfolio for the 1998 fiscal year. The Examples show the
cumulative expenses attributable to a hypothetical $10,000 investment in Class E
Shares of the Portfolio over specified periods.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT): None
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees ................................... 1.00%
12b-1 Fees ........................................ 0.00%
Shareholder Service Fee ........................... 0.25%
Other Expenses .................................... 0.51%
----
Total Annual Portfolio Operating Expenses ......... 1.76%
====
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Class E shares of the
Portfolio indicated for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Portfolio's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------- --------- --------- ---------
<S> <C> <C> <C>
$ 179 $554 $954 $2,073
</TABLE>
5
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS
The Portfolio may not achieve its objective and you could lose money by
investing. The following provides more detail about the Portfolio's principal
strategies and risks.
FOREIGN SECURITIES. Investments in foreign securities entail certain risks.
Since foreign securities are normally denominated and traded in foreign
currencies, the values of the Portfolio's assets may be affected favorably or
unfavorably by currency exchange rates, exchange control regulations, foreign
withholding taxes and restrictions or prohibitions on the repatriation of
foreign currencies. There may be less information publicly available about a
foreign company then about a U.S. company, and foreign companies are not
generally subject to accounting, auditing, and financial reporting standards and
practices comparable to those in the United States. The securities of some
foreign companies are less liquid and at times more volatile than securities of
comparable U.S. companies. Foreign brokerage commissions and other fees are also
generally higher than in the United States. Foreign settlement procedures and
trade regulations may involve certain risks (such as delay in payment or
delivery of securities or in the recovery of the Portfolio's assets held abroad)
and expenses not present in the settlement of domestic investments.
In addition, there may be a possibility of nationalization or expropriation
of assets, imposition of currency exchange controls, confiscatory taxation,
political or financial instability, and diplomatic developments which could
affect the value of the Portfolio's investments in certain foreign countries.
Legal remedies available to investors in certain foreign countries may be more
limited than those available with respect to investments in the United States or
in other foreign countries. In the case of securities issued by a foreign
governmental entity, the issuer may in certain circumstances be unable or
unwilling to meet its obligations on the securities in accordance with their
terms, and the Portfolio may have limited recourse available to it in the event
of default. The laws of some foreign countries may limit the Portfolio's ability
to invest in securities of certain issuers located in those foreign countries.
Special tax considerations apply to foreign securities. The Portfolio may buy or
sell foreign currencies and options and futures contracts on foreign currencies
for hedging purposes in connection with its foreign investments.
SMALLER COMPANIES. Smaller companies may offer greater opportunities for
capital appreciation than larger companies, but investments in such companies
involve certain special risks. Small companies often have limited product lines,
markets, or financial resources. They may be dependent on a limited management
group. While the markets in small company securities have grown rapidly in
recent years, such securities trade less frequently and in smaller volume than
more widely held securities. These securities tend to fluctuate more sharply in
value than other securities, and the Portfolio may experience some difficulty in
establishing or closing out positions in these securities at prevailing market
prices. There is usually less publicly-available information about small
companies and less market interest in small company securities than in large
company securities, and these securities may therefore take longer to reflect
the full value of their issuers' underlying earnings potential or assets.
Some securities of smaller issuers may be restricted as to resale or may
otherwise be highly illiquid. The Portfolio may not be able to sell such
securities when it wishes. The Advisor or its affiliates or clients may hold
securities issued by the same issuers, and may in some cases have acquired the
securities at different times, on more favorable terms, or at more favorable
prices, than the Portfolio.
TEMPORARY DEFENSIVE STRATEGIES. Mentor Perpetual may implement temporary
defensive strategies in order to reduce fluctuations in the value of the
Portfolio's assets. At those times, the Portfolio may invest any portion
6
<PAGE>
of its assets in cash or cash equivalents, money market instruments, or other
short-term, high-quality investments Mentor Perpetual considers consistent with
such defensive strategies. It is impossible to predict when, or for how long,
the Portfolio will use these defensive strategies.
PORTFOLIO TURNOVER. The length of time the Portfolio has held a particular
security is not generally a consideration in investment decisions. The
investment policies of the Portfolio may lead to frequent changes in the
Portfolio's investments, particularly in periods of volatile market movements. A
change in the securities held by the Portfolio is known as "portfolio turnover."
Portfolio turnover generally involves some expense to the Portfolio, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities, and therefore will affect
Portfolio performance. Such sales may increase the amount of capital gains (and,
in particular, short-term gains) realized by the Portfolio, on which
shareholders pay tax.
OTHER INVESTMENTS AND RISKS
The following provides more detail about the Portfolio's other investments
and risks and other circumstances which could adversely affect the Portfolio's
shares or its total return.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio may engage in foreign
currency exchange transactions to protect against uncertainty in the level of
future currency exchange rates. The Portfolio may engage in foreign currency
exchange transactions in connection with the purchase and sale of portfolio
securities ("transaction hedging") and to protect against changes in the value
of specific portfolio positions ("position hedging").
The Portfolio also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which it contracts
to purchase or sell and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign currency. The
Portfolio may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate in connection with transaction hedging.
The Portfolio may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and may purchase and sell
foreign currency futures contracts, for hedging and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange currency
at a future time at a rate or rates that may be higher or lower than the spot
rate. Foreign currency futures contracts are standardized exchange-traded
contracts and have margin requirements. For transaction hedging purposes, the
Portfolio may also purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
The Portfolio may engage in position hedging to protect against a decline
in value relative to the U.S. dollar of the currencies in which portfolio
securities are denominated or quoted (or an increase in value of a currency in
which securities the Portfolio intends to buy are denominated). For position
hedging purposes, the Portfolio may purchase or sell foreign currency futures
contracts and foreign currency forward contracts, and may purchase and sell put
and call options on foreign currency futures contracts and on foreign
currencies. In connection with position hedging, the Portfolios may also
purchase or sell foreign currencies on a spot basis.
Although there is no limit to the amount of the Portfolio's assets that may
be invested in foreign currency exchange and foreign currency forward contacts,
the Portfolio will only enter into such transactions to the extent necessary to
effect the hedging transactions described above.
7
<PAGE>
LEVERAGE. The Portfolio may borrow money to invest in additional portfolio
securities. This practice, known as "leverage", increases the Portfolio's market
exposure and its risk and may result in losses. When the Portfolio has borrowed
money for leverage and its investments increase or decrease in value, the
Portfolio's net asset value will normally increase or decrease more than if it
had not borrowed money. The interest the Portfolio must pay on borrowed money
will reduce the amount of any potential gains or increase any losses. The extent
to which the Portfolio will borrow money, and the amount it may borrow, depend
on market conditions and interest rates. Successful use of leverage depends on
Mentor Perpetual's ability to predict market movements correctly.
OPTIONS AND FUTURES. The Portfolio may buy and sell call and put options to
hedge against changes in net asset value or to realize a greater current return.
In addition, through the purchase and sale of futures contracts and related
options, the Portfolio may at times seek to hedge against fluctuations in net
asset value and, to the extent consistent with applicable law, to increase
investment return.
The Portfolio's ability to engage in options and futures strategies will
depend on the availability of liquid markets in such instruments. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures contracts. Therefore, there is no assurance that the
Portfolio will be able to utilize these instruments effectively for the purposes
stated above. Transactions in options and futures involve certain risks which
are described below and in the Statement of Additional Information.
Transactions in options and futures contracts involve brokerage costs and
may require the Portfolio to segregate assets to cover its outstanding
positions. For more information, see the Statement of Additional Information.
INDEX FUTURES AND OPTIONS. The Portfolio may buy and sell index futures
contracts ("index futures") and options on index futures and on indices for
hedging purposes (or may purchase warrants whose value is based on the value
from time to time of one or more foreign securities indices). An "index future"
is a contract to buy or sell units of a particular bond or stock index at an
agreed price on a specified future date. Depending on the change in value of the
index between the time when the Portfolio enters into and terminates an index
future or option transaction, the Portfolio realizes a gain or loss. The
Portfolio may also, to the extent consistent with applicable law, buy and sell
index futures and options to increase its investment return.
RISKS RELATED TO OPTIONS AND FUTURES STRATEGIES. Options and futures
transactions involve costs and may result in losses. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by the Portfolio that are the subject of a
hedge. The successful use by the Portfolio of the strategies described above
further depends on the ability of its investment adviser to forecast market
movements correctly. Other risks arise from the Portfolio's potential inability
to close out futures or options positions. Although the Portfolio will enter
into options or futures transactions only if its investment adviser believes
that a liquid secondary market exists for such options or futures contracts,
there can be no assurance that the Portfolio will be able to effect closing
transactions at any particular time or at an acceptable price.
The Portfolio generally expects that its options transactions will be
conducted on recognized exchanges. The Portfolio may in certain instances
purchase and sell options in the over-the-counter markets. The Portfolio's
ability to terminate options in the over-the-counter markets may be more limited
than for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. The Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of its investment
8
<PAGE>
adviser, the pricing mechanism and liquidity of the over-the-counter markets are
satisfactory and the participants are responsible parties likely to meet their
obligations.
The Portfolio will not purchase futures or options on futures or sell
futures if as a result the sum of the initial margin deposits on the Portfolio's
existing futures positions and premiums paid for outstanding options on futures
contracts would exceed 5% of the Portfolio's assets. (For options that are
"in-the-money" at the time of purchase, the amount by which the option is
"in-the-money" is excluded from this calculation.)
REPURCHASE AGREEMENTS AND SECURITIES LOANS. The Portfolio may enter into
repurchase agreements and securities loans. Under a repurchase agreement, the
Portfolio purchases a debt instrument for a relatively short period (usually not
more than one week), which the seller agrees to repurchase at a fixed time and
price, representing the Portfolio's cost plus interest. Under a securities loan,
the Portfolio lends portfolio securities. The Portfolio will enter into
repurchase agreements and securities loans only with commercial banks and with
registered broker-dealers who are members of a national securities exchange or
market makers in government securities, and in the case of repurchase
agreements, only if the debt instrument is a U.S. Government security. Although
Mentor Perpetual will monitor these transactions to ensure that they will be
fully collateralized at all times, a Portfolio bears a risk of loss if the other
party defaults on its obligation and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral. If the other party should
become involved in bankruptcy or insolvency proceedings, it is possible that the
Portfolio may be treated as an unsecured creditor and be required to return the
underlying collateral to the other party's estate.
YEAR 2000. It is generally recognized that certain computer systems in use
today may not perform their intended functions adequately after the Year 1999
because of the inability of the software to distinguish the Year 2000 from the
Year 1900. The Portfolio receives services from a number of providers which rely
on the smooth functioning of their respective systems and the systems of others
to perform those services. In addition, the Portfolio's software and that of the
issuers of securities held by the Portfolio could be subject to problems caused
by the "Year 2000" problem. Mentor Perpetual is taking steps that it believes
are reasonably designed to address each of these potential "Year 2000" problems
and to obtain satisfactory assurances that comparable steps are being taken by
the Portfolio's other major service providers. There can be no assurance,
however, that these steps will be sufficient to avoid any adverse impact on the
Portfolio from this problem.
MANAGEMENT RISK. Although a Portfolio may have the flexibility to use some
or all of the investment strategies, securities and derivative instruments
described in this prospectus and in the Statement of Additional Information, the
Advisor may choose not to use a particular strategy or type of security for a
variety of reasons. Also, in some market conditions some strategies and
securities may not be available for use. These choices may cause the Portfolio
to miss opportunities, lose money or not achieve its objective.
CHANGES IN INVESTMENT POLICY. Except for investment policies designated in
this Prospectus or the Statement of Additional Information as fundamental, the
investment objective and policies described herein are not fundamental and may
be changed by the Trustees without shareholder approval. As a matter of policy,
the Trustees will not materially change the Portfolio's investment objective
without shareholder approval. (Any such change could, of course, result in a
change in the nature of the securities in which the Portfolio may invest and the
risks involved in an investment in the Portfolio.)
9
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MANAGEMENT
The Trustees of Mentor Institutional Trust ("the Trust") are responsible
for generally overseeing the conduct of the Trust's business. They have hired
MENTOR PERPETUAL ADVISORS ("MENTOR PERPETUAL"), LLC, located at 901 East Byrd
Street, Richmond, Virginia, to act as investment adviser to the Portfolio. In
1998, Mentor Perpetual received a fee of 1.00% of average net assets for its
advisory services to the International Portfolio.Mentor Investment Group, LLC
("Mentor Investment Group") or Mentor Perpetual may agree to bear certain
expenses of the Portfolio pursuant to voluntary expense limitations from time to
time in effect.
Mentor Investment Advisors, LLC ("Mentor Advisors") is a wholly owned
subsidiary of Mentor Investment Group, which is in turn a subsidiary of Wheat
First Butcher Singer, Inc. ("Wheat First Butcher Singer"). Wheat First Butcher
Singer is wholly owned subsidiary of First Union Corp. ("First Union"), a
leading financial services company with approximately $234 billion in assets and
$17 billion in total stockholders' equity as of September 30, 1998. Mentor
Advisors and its affiliates serve as investment advisors to over twenty separate
investment portfolios in the Mentor Family of Funds, with total assets under
management of more than $15 billion.
Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc and Mentor Advisors. The Perpetual organization
currently serves as investment adviser for assets of more than $14 billion. Its
clients include 28 unit investment trusts and other public investment pools,
including private individuals, charities, pension plans, and life assurance
companies. Mentor Perpetual currently serves as investment adviser to the Mentor
Perpetual Global Portfolio, an open-end mutual fund which is a series of Mentor
Funds. Investment decisions for the International Portfolio are made by a team
of investment professionals.
Subject to the general oversight of the Trustees, Mentor Perpetual manages
the Portfolio in accordance with the stated policies of the Portfolio. Mentor
Perpetual makes investment decisions for the Portfolio and places the purchase
and sale orders for the Portfolio's portfolio transactions. In selecting
broker-dealers, Mentor Perpetual may consider research and brokerage services
furnished to it and its affiliates. Subject to seeking the best overall terms
available, Mentor Perpetual may consider sales of shares of the Portfolio (and,
if permitted by law, of other funds in the Mentor family) as a factor in the
selection of broker-dealers to execute portfolio transactions for the Portfolio.
Mentor Perpetual may at times cause the Portfolio to pay commissions to
broker-dealers which are affiliated with Mentor Perpetual.
HOW THE PORTFOLIO VALUES ITS SHARES
The Portfolio calculates the net asset value of a share of each class by
dividing the total value of its assets attributable to that class, less
liabilities attributable to that class, by the number of shares of the class
outstanding. Shares are valued as of the close of regular trading on the New
York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which has been determined to approximate the fair market value
of such investments. All other securities and assets are valued at their fair
values. The net asset value of shares of different classes will generally differ
due to the variance in daily net income realized by and dividends paid on each
class, and any differences in the expenses of different classes.
Securities quoted in foreign currencies are translated into U.S. dollars at
the current exchange rates or at such other rates as may be used in accordance
with procedures approved by the Trustees. As a result, fluctuations in the
values of such currencies in relation to the U.S. dollar will affect the net
asset value of Portfolio
10
<PAGE>
shares even though there has not been any change in the values of such
securities as quoted in such foreign currencies. All assets and liabilities of
the Portfolio denominated in foreign currencies are valued in U.S. dollars based
on the exchange rate last quoted by a major bank prior to the time when the net
asset value of the Portfolio's shares is calculated. Because certain of the
securities in which the Portfolio may invest may trade on days when the
Portfolio does not price its shares, the net asset value of the Portfolio's
shares may change on days when shareholders will not be able to purchase or
redeem their shares.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of a particular class of shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds) are determined based on market quotations collected earlier
in the day at the latest practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may occur between
such times and the close of the Exchange which will not be reflected in the
computation of net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Trustees.
PURCHASE OF SHARES
Class E shares of the Portfolio are available to shareholders who invest or
maintain a Portfolio account with the assistance of a broker-dealer, financial
consultant, or similar service provider (a "financial intermediary").
Shares are sold at a price based on the Portfolio's net asset value next
determined after a purchase order is received by the Portfolio. In most cases,
in order to receive that day's public offering price, your order must be
received by the Trust or Mentor Distributors, LLC ("Mentor Distributors") before
the close of regular trading on the New York Stock Exchange.
Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, serves as distributor of the Portfolio's shares. Mentor Distributors is
not obligated to sell any specific amount of shares of the Portfolio.
An investor may make an initial purchase of shares in the Portfolio by
submitting completed application materials along with a purchase order, and by
making payment to the Trust, or through a financial intermediary. If you
purchase shares through your financial intermediary, your financial intermediary
will be responsible for forwarding any necessary documentation and payments to
Mentor Distributors.
Investors will be required to make minimum initial investments of $500,000
and minimum subsequent investments of $25,000. Investments made through advisory
accounts maintained with investment advisers registered under the Investment
Advisers Act of 1940, as amended (including "wrap" accounts), are not subject to
these minimum investment requirements. The Portfolio reserves the right at any
time to change the initial and subsequent investment minimums required of
investors.
If you buy shares through a financial intermediary, the financial
intermediary must ensure that Mentor Distributors receives your order before the
close of regular trading on the New York Stock Exchange for you to receive that
day's public offering price.
Shares of the Portfolio may be purchased by (i) paying cash, (ii)
exchanging securities acceptable to Mentor Perpetual, or (iii) a combination of
such securities and cash. Purchase of shares of the Portfolio in exchange
11
<PAGE>
for securities is subject in each case to the determination by Mentor Perpetual
that the securities to be exchanged are acceptable for purchase by the
Portfolio. Securities accepted by Mentor Perpetual in exchange for Portfolio
shares will be valued in the same manner as the Portfolio's assets as of the
time of the Portfolio's next determination of net asset value after such
acceptance. All dividends and subscription or other rights which are reflected
in the market price of accepted securities at the time of valuation become the
property of the Portfolio and must be delivered to the Portfolio upon receipt by
the investor from the issuer. A gain or loss for federal income tax purposes
would be realized upon the exchange by an investor that is subject to federal
income taxation, depending upon the investor's basis in the securities tendered.
A shareholder who wishes to purchase shares by exchanging securities should
obtain instructions by calling Mentor Services Company, Inc. at 1-800-382-0016.
Mentor Distributors, Mentor Perpetual, and affiliates thereof, at their own
expense and out of their own assets, may provide compensation to dealers in
connection with sales of shares of the Portfolio. Such compensation may include,
but is not limited to, financial assistance to dealers in connection with
conferences, sales, or training programs for their employees, seminars for the
public, advertising or sales campaigns, or other dealer-sponsored special
events. In some instances, this compensation may be made available only to
certain dealers whose representatives have sold or are expected to sell
significant amounts of shares. In addition, if an investor purchases shares of
the portfolio through EVEREN Securities, Inc. or certain other financial
institutions that have made arrangements with Mentor Distributors with the
redemption proceeds received by the investor within the preceding 90 days from
the sale of shares of any non-Mentor open-end mutual fund, EVEREN Securities,
Inc. or such other financial institutions may compensate the investor's
investment consultant in connection with that purchase. Dealers may not use
sales of Portfolio shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc.
In all cases Mentor Perpetual and Mentor Distributors reserve the right to
reject any particular investment.
OTHER SERVICES
SHAREHOLDER SERVICING PLAN; FINANCIAL INTERMEDIARIES. The Portfolio has
adopted a Shareholder Servicing Plan (the "Plan") with respect to its Class E
shares. Under the Plan, financial intermediaries may enter into shareholder
service agreements with Mentor Distributors or Mentor Investment Group to
provide administrative support to their customers who hold Class E shares of the
Portfolio. In return for providing these support services, a financial
intermediary may receive payments from Mentor Investment Group at a rate not
exceeding 0.25% of the average daily net assets of the Portfolio attributable to
the Class E shares held by its customers. These support services may include,
but are not limited to, the following: providing office space, equipment,
telephone facilities, and various personnel, including clerical, supervisory,
and computer personnel, as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Portfolio; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as Mentor Investment Group reasonably requests.
In addition to receiving payments under the Plan, financial intermediaries
may be compensated by Mentor Perpetual and/or Mentor Investment Group, or
affiliates thereof, for providing administrative support services to holders of
Class E shares of the Portfolio. These payments will be made directly by Mentor
Perpetual and/or Mentor Investment Group and will not be made from the assets of
the Portfolio.
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When you effect transactions with the Portfolio (including, for example,
purchases, sales, or redemptions of shares) through a financial intermediary,
your financial intermediary, and not the Portfolio, will be responsible for
taking all steps, and furnishing all necessary documentation, to effect the
transactions. Your financial intermediary may charge for these services. Certain
financial intermediaries may not effect transactions with the Portfolio for
their clients.
REDEMPTION OF SHARES
You can sell your shares to the Portfolio any day the New York Stock
Exchange is open, either directly to the Portfolio or through your financial
intermediary.
SELLING SHARES DIRECTLY TO THE PORTFOLIO. A shareholder may redeem all or
any portion of its shares in the Portfolio any day the New York Stock Exchange
is open by sending a signed letter of instruction and stock power form, along
with any certificates that represent shares the shareholder wants to sell, to
the Portfolio c/o Boston Financial Data Services, 2 Heritage Drive, North
Quincy, MA 02171. Redemptions will be effected at the net asset value per share
of the Portfolio next determined after the receipt by the Portfolio of
redemption instructions in "good order" as described below. In order to receive
that day's net asset value, your request must be received before the closure of
regular trading on the New York Stock Exchange. The Portfolio will only redeem
shares for which it has received payment. A check for the proceeds will normally
be mailed on the next business day after a request in good order is received.
SELLING SHARES THROUGH YOUR FINANCIAL INTERMEDIARY. Your financial
intermediary must receive your request before the close of regular trading on
the New York Stock Exchange to receive that day's net asset value. If you redeem
your shares through a financial intermediary, your financial intermediary will
be responsible for delivering your redemption request and all necessary
documentation to the Portfolio and may charge you for its services.
GENERAL. A redemption request will be considered to have been made in
"good order" if the following conditions are satisfied:
(1) the request is in writing, states the number of shares to be redeemed,
and identifies the shareholder's Portfolio account number;
(2) the request is signed by each registered owner exactly as the shares
are registered; and
(3) if the shares to be redeemed were issued in certificate form, the
certificates are endorsed for transfer (or are accompanied by an endorsed stock
power) and accompany the redemption request.
If shares to be redeemed represent an investment made by check, the Trust
reserves the right not to transmit the redemption proceeds to the shareholder
until the check has been collected, which may take up to 15 days after the
purchase date.
The Portfolio reserves the right to require signature guarantees. A
guarantor of a signature must be an eligible guarantor institution, which term
includes most banks and trust companies, savings associations, credit unions,
and securities brokers or dealers. The purpose of a signature guarantee is to
protect shareholders against
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the possibility of fraud. Mentor Distributors usually requires additional
documentation for the sale of shares by a corporation, partnership, agent,
fiduciary, or surviving joint owner. Contact Mentor Services Company, Inc. for
details.
Mentor Distributors may facilitate any redemption request. There is no
extra charge for this service.
OTHER INFORMATION CONCERNING REDEMPTION. Under unusual circumstances, the
Portfolio may suspend repurchases, or postpone payment for more than seven days,
as permitted by federal securities laws. In addition, the Portfolio reserves the
right, if conditions exist which make cash payments undesirable, to honor any
request for redemption by making payment in whole or in part by securities
valued in the same way as they would be valued for purposes of computing the
Portfolio's per share net asset value. If payment is made in securities, a
shareholder may incur brokerage expenses in converting those securities into
cash.
HOW DISTRIBUTIONS ARE MADE
The Portfolio distributes net investment income and any net realized
capital gains at least annually. Distributions from capital gains are made after
applying any available capital loss carryovers.
All Portfolio distributions will be invested in additional Portfolio shares
of the same class, unless the shareholder instructs a Portfolio otherwise.
TAXES
The Portfolio will distribute substantially all of its net investment
income and capital gain net income on a current basis.
Distributions of net investment income and short-term capital gains are
taxable as ordinary income. Distributions of capital gain on assets held more
than 12 months will be taxable as capital gains. Distributions are taxable
whether received in cash or reinvested in additional shares. DISTRIBUTIONS ARE
TAXABLE TO A SHAREHOLDER EVEN IF THEY ARE PAID FROM INCOME OR GAINS EARNED BY
THE PORTFOLIO PRIOR TO THE SHAREHOLDER'S INVESTMENT AND THUS WERE INCLUDED IN
THE PRICE PAID BY THE SHAREHOLDER.
Any gain resulting from the sale or exchange of your shares generally also
will be subject to tax. Distributions and transactions in shares may also be
subject to state and local taxes. The nature of the Portfolio's distributions
will be affected by its investment strategies. If the Portfolio's investment
return consists largely of interest, dividends and capital gains from short-term
holdings, it will distribute largely ordinary income. If the Portfolio's return
comes largely from the sale of long-term holdings, it will distribute largely
long-term capital gains.
Shareholders of the Portfolio who are U.S. citizens or residents may be
able to claim a foreign tax credit or deduction on their U.S. income tax returns
with respect to foreign taxes paid by the Portfolio. If, at the end of the
fiscal year of the Portfolio, more than 50% of the Portfolio's total assets are
represented by stock or securities of foreign corporations, the Portfolio
intends to make an election permitted by the Internal Revenue Code to treat any
eligible foreign taxes that were paid by the Portfolio as paid by its
shareholders. In that case, shareholders will be required to include in U.S.
taxable income their pro rata share of such taxes, but may then be entitled to
claim a foreign tax credit or deduction (but not both) for their share of such
taxes.
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The Portfolio's investments in foreign securities may be subject to foreign
withholding taxes. In that case, the Portfolio's yield on those securities would
be decreased. In addition, the Portfolio's investments in foreign securities or
foreign currencies may increase or accelerate the Portfolio's recognition of
ordinary income and may affect the timing or amount of the Portfolio's
distributions.
The foregoing is a summary of certain federal income tax consequences of
investing in the Portfolio. Dividends and distributions also may be subject to
state, local and foreign taxes. Shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state, local, or foreign
taxes. Non-U.S. investors should consult their tax advisers concerning the tax
consequences of ownership of shares of a Portfolio, including the possibility
that distributions may be subject to a 30% United States withholding tax (or a
reduced rate of withholding provided by treaty).
15
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FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolio's financial performance for the period of its operations. Certain
information reflects financial results for a single Portfolio share. The total
returns in the tables represent the rate that an investor would have earned or
lost on an investment in a Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG Peat Marwick LLP, the
Trust's independent auditors. Their report dated December 18, 1998 on the
financial statements of the Trust for the fiscal year ended October 31, 1998 is
included in the Portfolio's Annual Report to shareholders, which is incorporated
into the Statement of Additional Information by reference. A copy of the Annual
Report may be obtained free of charge from the Trust.
MENTOR PERPETUAL INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS
CLASS E SHARES
<TABLE>
<CAPTION>
PERIOD
ENDED
10/31/98 (E)
-------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 13.53
----------
INCOME FROM INVESTMENT OPERATIONS ................................
Net investment income ........................................... 0.19
Net realized and unrealized gain on investments ................. 1.15
----------
Total from investment operations ................................ 1.34
----------
LESS DISTRIBUTIONS FROM
Net investment income ........................................... (0.02)
Tax return of capital ........................................... (0.13)
----------
Total distributions ........................................... (0.15)
----------
NET ASSET VALUE, END OF PERIOD ................................... $ 14.72
==========
Total Return* .................................................... 8.33%
==========
RATIOS / SUPPLEMENTAL DATA .......................................
Net assets, end of period (in thousands) ......................... $ 2,207
Ratio of expenses to average net assets .......................... 1.35% (a)
Ratio of expenses to average net assets excluding waiver ......... 1.76% (a)
Ratio of net investment income to average net assets ............. 1.57% (a)
Portfolio turnover rate .......................................... 120%
==========
</TABLE>
- ----------
(a) Annualized.
(e) For the period from January 16, 1998 (initial offering of Class E shares) to
October 31, 1998.
* Total return does not reflect sales commission and is not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
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The Trust's statement of additional information (SAI) and annual and
semi-annual reports to shareholders include additional information about the
Portfolio. The SAI and the financial statements included in the Portfolio's most
recent annual report to shareholders is incorporated by reference into this
prospectus, which means it is part of this prospectus for legal purposes. The
Portfolio's annual report discusses the market conditions and investment
strategies that significantly affected the Portfolio's performance during its
last fiscal year. You may get free copies of these materials, request other
information about a Portfolio, or make shareholder inquiries by calling
1-800-382-0016.
You may review and copy information about the Trust, including its SAI,
at the Securities and Exchange Commission's public reference room in Washington,
D.C. You may call the Commission at 1-800-SEC-0330 for information about the
operation of the public reference room. You may also access reports and other
information about the Trust on the Commission's Internet site at
http://www.sec.gov. You may get copies of this information, upon payment of
copying costs, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. You may need to refer to the Trust's file number
under the Investment Company Act, which is 811-8484.
MENTOR PERPETUAL
INTERNATIONAL
PORTFOLIO
-------------------------
PROSPECTUS
CLASS E SHARES
-------------------------
March 1, 1999
[MENTOR INVESTMENT GROUP LOGO]
<PAGE>
MENTOR INSTITUTIONAL TRUST
STATEMENT OF ADDITIONAL INFORMATION
(Mentor U.S. Government Cash Management Portfolio, Mentor Fixed-Income
Portfolio,
and Mentor Perpetual International Portfolio)
March 1, 1999
This Statement of Additional Information relates to the Mentor U.S.
Government Cash Management Portfolio, Mentor Fixed-Income Portfolio, and Mentor
Perpetual International Portfolio (each a "Portfolio" and, collectively, the
"Portfolios") of Mentor Institutional Trust (the "Trust"). Each Portfolio
currently offers one class of shares (Institutional or Class Y Shares), except
for the International Portfolio, which currently offers four classes of shares
(Class A, Class B, Institutional or Class Y Shares, and Class E shares). This
Statement is not a prospectus and should be read in conjunction with the
relevant prospectus dated March 1, 1999. A separate Statement of Additional
Information relates to the SNAP Fund of the Trust (the "SNAP Statement"). A copy
of any prospectus or of the SNAP Statement can be obtained without charge upon
by writing to Mentor Services Company, Inc., at 901 East Byrd Street, Richmond,
Virginia 23219, or by calling Mentor Services Company at 1-800-869-6042.
Certain disclosure has been incorporated by reference from the Trust's
annual report. For a free copy of the annual report call Mentor Services
Company at 1-800-869-6042.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
General ..................................................... 2
Investment Restrictions ..................................... 2
Certain Investment Strategies, Risks, and Policies .......... 3
Management of the Trust ..................................... 19
Principal Holders of Securities ............................. 22
Investment Advisory Services ................................ 23
Administrative Services ..................................... 25
Brokerage ................................................... 26
Determination of Net Asset Value ............................ 28
Tax Status .................................................. 31
The Distributor ............................................. 34
Independent Accountants ..................................... 35
Financial Statements ........................................ 35
Custodian ................................................... 35
Shares of the Trust ......................................... 35
Performance Information ..................................... 36
Shareholder Liability ....................................... 40
Members of Investment Management Teams ...................... 40
Appendix .................................................... 43
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GENERAL
Mentor Institutional Trust (the "Trust") is a Massachusetts business trust
organized on February 8, 1994 as IMG Institutional Trust. The Trust's name was
changed to Mentor Institutional Trust as of June 20, 1995.
INVESTMENT RESTRICTIONS
The Trust has adopted the following restrictions applicable to all of the
Portfolios (except where otherwise noted), which may not be changed without the
affirmative vote of a "majority of the outstanding voting securities" of a
Portfolio, which is defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), to mean the affirmative vote of the lesser of (1) more than
50% of the outstanding shares of the Portfolio and (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares are present at
the meeting in person or by proxy.
A Portfolio may not:
1. Purchase any security (other than U.S. Government securities) if as a
result: (i) as to 75% of such Portfolio's total assets, more than 5% of the
Portfolio's total assets (taken at current value) would then be invested in
securities of a single issuer, or (ii) more than 25% of the Portfolio's total
assets would be invested in a single industry; except that Mentor U.S.
Government Cash Management Portfolio may invest up to 100% of its assets in
securities of issuers in the banking industry.
2. Acquire more than 10% of the voting securities of any issuer.
3. Act as underwriter of securities of other issuers except to the extent
that, in connection with the disposition of portfolio securities, it may be
deemed to be an underwriter under certain federal securities laws.
4. Issue any class of securities which is senior to the Portfolio's
shares of beneficial interest.
5. Purchase or sell securities on margin (but a Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions).
(Margin payments in connection with transactions in futures contracts,
options, and other financial instruments are not considered to constitute the
purchase of securities on margin for this purpose.)
6. Purchase or sell real estate or interests in real estate, including
real estate mortgage loans, although it may purchase and sell securities
which are secured by real estate and securities of companies that invest or
deal in real estate or real estate limited partnership interests. (For
purposes of this restriction, investments by a Portfolio in mortgage-backed
securities and other securities representing interests in mortgage pools
shall not constitute the purchase or sale of real estate or interests in real
estate or real estate mortgage loans.)
7. (All Portfolios other than Mentor Perpetual International Portfolio)
Borrow money in excess of 5% of the value (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed) at the
time the borrowing is made, and then only from banks as a temporary measure
to facilitate the meeting of redemption requests (not for leverage) which
might otherwise require the untimely disposition of portfolio investments or
for extraordinary or emergency purposes. (Mentor Perpetual International
Portfolio) Borrow more than 33% of the value of its total assets less all
liabilities and indebtedness (other than such borrowings) not represented by
senior securities.
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8. (All Portfolios other than Mentor Perpetual International Portfolio)
Pledge, hypothecate, mortgage, or otherwise encumber its assets in excess of
15% of its total assets (taken at current value) and then only to secure
borrowings permitted by these investment restrictions.
9. Purchase or sell commodities or commodity contracts, except that a
Portfolio may purchase or sell financial futures contracts, options on
futures contracts, and futures contracts, forward contracts, and options with
respect to foreign currencies, and may enter into swap transactions.
10. Make loans, except by purchase of debt obligations in which the
Portfolio may invest consistent with its investment policies or by entering
into repurchase agreements.
In addition, it is contrary to the current policy of each of the
Portfolios, which policy may be changed without shareholder approval, to invest
in (a) securities which at the time of such investment are not readily
marketable, (b) securities restricted as to resale (excluding securities
determined by the Trustees (or the person designated by the Trustees to make
such determinations) to be readily marketable), and (c) repurchase agreements
maturing in more than seven days, if, as a result, more than 15% of the
Portfolio's net assets (10% with respect to Mentor U.S. Government Cash
Management Portfolio) (taken at current value) would then be invested in the
aggregate in securities described in (a), (b), and (c) above.
All percentage limitations on investments will apply at the time of
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment. Except
for the investment restrictions listed above as fundamental or to the extent
designated as such in a Prospectus with respect to a Portfolio, the other
investment policies described in this Statement or in a Prospectus are not
fundamental and may be changed by approval of the Trustees. As a matter of
policy, the Trustees would not materially change a Portfolio's investment
objectives without shareholder approval.
CERTAIN INVESTMENT STRATEGIES, RISKS, AND POLICIES
Set forth below is information concerning certain investment techniques in
which one or more of the Portfolios may engage, and certain of the risks they
may entail. Certain of the investment techniques may not be available to a
Portfolio. See "Investment objective(s) and policies" in the Trust's
Prospectuses for a description of the investment techniques available to a
particular Portfolio.
FORWARD COMMITMENTS
A Portfolio may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if the Portfolio holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the Portfolio enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the Portfolio's other assets.
Where such purchases are made through dealers, the Portfolios rely on the dealer
to consummate the sale. The dealer's failure to do so may result in the loss to
the Portfolio of an advantageous yield or price.
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Although a Portfolio will generally enter into forward commitments with the
intention of acquiring securities for its portfolio or for delivery pursuant to
options contracts it has entered into, a Portfolio may dispose of a commitment
prior to settlement if its investment adviser deems it appropriate to do so. A
Portfolio may realize short-term profits or losses upon the sale of forward
commitments.
REPURCHASE AGREEMENTS
A Portfolio may enter into repurchase agreements. A repurchase agreement is
a contract under which the Portfolio acquires a security for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Portfolio to resell such security at a fixed time and
price (representing the Portfolio's cost plus interest). It is the Trust's
present intention to enter into repurchase agreements only with member banks of
the Federal Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Trustees of the
Trust and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by a Portfolio which are
collateralized by the securities subject to repurchase. The investment adviser
will monitor such transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults, a
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, a Portfolio
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if a Portfolio is treated as an unsecured
creditor and required to return the underlying collateral to the seller's
estate.
WHEN-ISSUED SECURITIES
A Portfolio may from time to time purchase securities on a "when-issued"
basis. Debt securities are often issued on this basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time a
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase. During the period between purchase and
settlement, no payment is made by a Portfolio and no interest accrues to the
Portfolio. To the extent that assets of a Portfolio are held in cash pending the
settlement of a purchase of securities, that Portfolio would earn no income.
While a Portfolio may sell its right to acquire when-issued securities prior to
the settlement date, a Portfolio intends actually to acquire such securities
unless a sale prior to settlement appears desirable for investment reasons. At
the time a Portfolio makes the commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the amount due and
the value of the security in determining the Portfolio's net asset value. The
market value of the when-issued securities may be more or less than the purchase
price payable at the settlement date. A Portfolio will establish a segregated
account in which it will maintain cash and U.S. Government Securities or other
high-grade debt obligations at least equal in value to commitments for
when-issued securities. Such segregated securities either will mature or, if
necessary, be sold on or before the settlement date.
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COLLATERALIZED MORTGAGE OBLIGATIONS; OTHER MORTGAGE-RELATED SECURITIES
Collateralized mortgage obligations or "CMOs" are debt obligations or
pass-through certificates collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by certificates
issued by the Government National Mortgage Association, ("GNMA"), the Federal
National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"), but they also may be collateralized by whole loans or
private pass-through certificates (such collateral collectively hereinafter
referred to as "Mortgage Assets"). CMOs may be issued by agencies or
instrumentalities of the U.S. Government, or by private originators of, or
investors in, mortgage loans.
In a CMO, a series of bonds or certificates is generally issued in multiple
classes. Each class of CMOs is issued at a specific fixed or floating rate
coupon and has a stated maturity or final distribution date. Principal
prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on most classes of the CMOs on a monthly, quarterly,
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In a CMO, payments of principal, including any principal prepayments, on the
Mortgage Assets are applied to the classes of the series in a pre-determined
sequence.
RESIDUAL INTERESTS. Residual interests are derivative mortgage securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans. The cash flow generated by the
mortgage assets underlying a series of mortgage securities is applied first to
make required payments of principal of and interest on the mortgage securities
and second to pay the related administrative expenses of the issuer. The
residual generally represents the right to any excess cash flow remaining after
making the foregoing payments. Each payment of such excess cash flow to a holder
of the related residual represents income and/or a return of capital. The amount
of residual cash flow resulting from a series of mortgage securities will depend
on, among other things, the characteristics of the mortgage assets, the coupon
rate of each class of the mortgage securities, prevailing interest rates, the
amount of administrative expenses, and the prepayment experience on the mortgage
assets. In particular, the yield to maturity on residual interests may be
extremely sensitive to prepayments on the related underlying mortgage assets in
the same manner as an interest-only class of stripped mortgage-backed
securities. In addition, if a series of mortgage securities includes a class
that bears interest at an adjustable rate, the yield to maturity on the related
residual interest may also be extremely sensitive to changes in the level of the
index upon which interest rate adjustments are based. In certain circumstances,
there may be little or no excess cash flow payable to residual holders. A
Portfolio may fail to recoup fully its initial investment in a residual.
Residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The
residual interest market has only recently developed and residuals currently may
not have the liquidity of other more established securities trading in other
markets. Residuals may be subject to certain restrictions on transferability.
ZERO-COUPON SECURITIES
Zero-coupon securities in which a Portfolio may invest are debt obligations
which are generally issued at a discount and payable in full at maturity, and
which do not provide for current payments of interest prior to maturity.
Zero-coupon securities usually trade at a deep discount from their face or par
value and are subject to
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greater market value fluctuations from changing interest rates than debt
obligations of comparable maturities which make current distributions of
interest. As a result, the net asset value of shares of a Portfolio investing in
zero-coupon securities may fluctuate over a greater range than shares of other
mutual funds investing in securities making current distributions of interest
and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly by
the U.S. Treasury or other short-term debt obligations, and longer-term bonds or
notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and resold them
in custodial receipt programs with a number of different names, including
Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual on
Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves are
held in book-entry form at the Federal Reserve Bank or, in the case of bearer
securities (i.e., unregistered securities which are owned ostensibly by the
bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, a Portfolio will be able to have its beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
Zero-coupon securities allow an issuer to avoid the need to generate cash
to meet current interest payments. Even though zero-coupon securities do not pay
current interest in cash, a Portfolio is nonetheless required to accrue interest
income on them and to distribute the amount of that interest at least annually
to shareholders. Thus, a Portfolio could be required at times to liquidate other
investments in order to satisfy its distribution requirement.
OPTIONS
A Portfolio may purchase and sell put and call options on its portfolio
securities to enhance investment performance and to protect against changes in
market prices.
COVERED CALL OPTIONS. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.
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A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call option, a
Portfolio gives up some or all of the opportunity to profit from an increase in
the market price of the securities covering the call option during the life of
the option. The Portfolio retains the risk of loss should the price of such
securities decline. If the option expires unexercised, the Portfolio realizes a
gain equal to the premium, which may be offset by a decline in price of the
underlying security. If the option is exercised, the Portfolio realizes a gain
or loss equal to the difference between the Portfolio's cost for the underlying
security and the proceeds of sale (exercise price minus commissions) plus the
amount of the premium.
A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected market rise. Any profits from a closing purchase transaction may
be offset by a decline in the value of the underlying security. Conversely,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from a closing purchase transaction is likely to be offset in whole or in part
by unrealized appreciation of the underlying security owned by the Portfolio.
COVERED PUT OPTIONS. A Portfolio may write covered put options in order to
enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
PURCHASING PUT AND CALL OPTIONS. A Portfolio may also purchase put options
to protect portfolio holdings against a decline in market value. This protection
lasts for the life of the put option because the Portfolio, as a holder of the
option, may sell the underlying security at the exercise price regardless of any
decline in its market price. In order for a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs that the Portfolio
must pay. These
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costs will reduce any profit the Portfolio might have realized had it sold the
underlying security instead of buying the put option.
A Portfolio may purchase call options to hedge against an increase in the
price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option.
A Portfolio may also purchase put and call options to enhance its current
return.
OPTIONS ON FOREIGN SECURITIES. The Trust may, on behalf of a Portfolio,
purchase and sell options on foreign securities if in the opinion of its
investment advisor the investment characteristics of such options, including the
risks of investing in such options, are consistent with the Portfolio's
investment objectives. It is expected that risks related to such options will
not differ materially from risks related to options on U.S. securities. However,
position limits and other rules of foreign exchanges may differ from those in
the U.S. In addition, options markets in some countries, many of which are
relatively new, may be less liquid than comparable markets in the U.S.
RISKS INVOLVED IN THE SALE OF OPTIONS. Options transactions involve certain
risks, including the risks that a Portfolio's investment adviser will not
forecast interest rate or market movements correctly, that a Portfolio may be
unable at times to close out such positions, or that hedging transactions may
not accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of a Portfolio's
investment adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to hold,
or to purchase at a fixed price, a security on which it has sold an option at a
time when its investment adviser believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other unforeseen
events might cause The Options Clearing Corporation or an exchange to institute
special trading procedures or restrictions that might restrict the Trust's use
of options. The exchanges have established limitations on the maximum number of
calls and puts of each class that may be held or written by an investor or group
of investors acting in concert. It is possible that the Trust and other clients
of the Portfolios' investment advisers may be considered such a group. These
position limits may restrict the Trust's ability to purchase or sell options on
particular securities.
Options which are not traded on national securities exchanges may be closed
out only with the other party to the option transaction. For that reason, it may
be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations may also restrict the Trust's use of options.
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FUTURES CONTRACTS
In order to hedge against the effects of adverse market changes a Portfolio
may buy and sell futures contracts. A Portfolio may also, to the extent
permitted by applicable law, buy and sell futures contracts and options on
futures contracts to increase the Portfolio's current return. All such futures
and related options will, as may be required by applicable law, be traded on
exchanges that are licensed and regulated by the Commodity Futures Trading
Commission (the "CFTC").
INDEX FUTURES CONTRACTS AND OPTIONS. A Portfolio may invest in debt index
futures contracts and stock index futures contracts, and in related options. A
debt index futures contract is a contract to buy or sell units of a specified
debt index at a specified future date at a price agreed upon when the contract
is made. A unit is the current value of the index. Debt index futures in which
the Portfolios are presently expected to invest are not now available, although
such futures contracts are expected to become available in the future. A stock
index futures contract is a contract to buy or sell units of a stock index at a
specified future date at a price agreed upon when the contract is made. A unit
is the current value of the stock index.
The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index is composed of
100 selected common stocks, most of which are listed on the New York Stock
Exchange. The S&P 100 Index assigns relative weightings to the common stocks
included in the Index, and the Index fluctuates with changes in the market
values of those common stocks. In the case of the S&P 100 Index, contracts are
to buy or sell 100 units. Thus, if the value of the S&P 100 Index were $180, one
contract would be worth $18,000 (100 units x $180). The stock index futures
contract specifies that no delivery of the actual stocks making up the index
will take place. Instead, settlement in cash must occur upon the termination of
the contract, with the settlement being the difference between the contract
price and the actual level of the stock index at the expiration of the contract.
For example, if a Portfolio enters into a futures contract to buy 100 units of
the S&P 100 Index at a specified future date at a contract price of $180 and the
S&P 100 Index is at $184 on that future date, the Portfolio will gain $400 (100
units x gain of $4). If the Portfolio enters into a futures contract to sell 100
units of the stock index at a specified future date at a contract price of $180
and the S&P 100 Index is at $182 on that future date, the Portfolio will lose
$200 (100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, a Portfolio must invest in futures contracts with
respect to indexes or sub-indexes the movements of which will, in its judgment,
have a significant correlation with movements in the prices of the Portfolio's
securities.
Options on index futures contracts are similar to options on securities
except that options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the
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expiration date. Purchasers of options who fail to exercise their options prior
to the exercise date suffer a loss of the premium paid.
As an alternative to purchasing and selling call and put options on index
futures contracts, each of the Portfolios which may purchase and sell index
futures contracts may purchase and sell call and put options on the underlying
indexes themselves to the extent that such options are traded on national
securities exchanges. Index options are similar to options on individual
securities in that the purchaser of an index option acquires the right to buy
(in the case of a call) or sell (in the case of a put), and the writer
undertakes the obligation to sell or buy (as the case may be), units of an index
at a stated exercise price during the term of the option. Instead of giving the
right to take or make actual delivery of securities, the holder of an index
option has the right to receive a cash "exercise settlement amount". This amount
is equal to the amount by which the fixed exercise price of the option exceeds
(in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the date of the exercise, multiplied by a fixed
"index multiplier".
A Portfolio may purchase or sell options on stock indices in order to close
out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on an index involves less potential risk to a Portfolio because
the maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.
MARGIN PAYMENTS. When a Portfolio purchases or sells a futures contract, it
is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin". The nature of
initial margin is different from that of margin in security transactions in that
it does not involve borrowing money to finance transactions. Rather, initial
margin is similar to a performance bond or good faith deposit that is returned
to a Portfolio upon termination of the contract, assuming a Portfolio satisfies
its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Portfolio sells a futures contract and the value of the
underlying index rises above the delivery price, the Portfolio's position
declines in value. The Portfolio then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the value of the index underlying the futures contract. Conversely, if the price
of the underlying index falls below the delivery price of the contract, the
Portfolio's futures position increases in value. The broker then must make a
variation margin payment equal to the difference between the delivery price of
the futures contract and the value of the index underlying the futures contract.
When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS
LIQUIDITY RISKS. Positions in futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures. Although the Trust intends to purchase or sell futures only
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on exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures position at such time and, in the event of adverse
price movements, a Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such circumstances, an increase in
the price of the portfolio securities, if any, may partially or completely
offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there are
several special risks relating to options on futures contracts. The ability to
establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Portfolio would have to exercise the
options in order to realize any profit.
HEDGING RISKS. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying index or
movements in the prices of a Portfolio's securities which are the subject of a
hedge. A Portfolio's investment adviser will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related options on securities and indexes the movements of which will, in its
judgment, correlate closely with movements in the value of the underlying index
and the Portfolio's portfolio securities sought to be hedged.
Successful use of futures contracts and options by a Portfolio for hedging
purposes is also subject to its investment adviser's ability to predict
correctly movements in the direction of the market. It is possible that, where a
Portfolio has purchased puts on futures contracts to hedge its portfolio against
a decline in the market, the index on which the puts are purchased may increase
in value and the value of securities held in the portfolio may decline. If this
occurred, the Portfolio would lose money on the puts and also experience a
decline in value in its portfolio securities. In addition, the prices of
futures, for a number of reasons, may not correlate perfectly with movements in
the underlying index due to certain market distortions. First, all participants
in the futures market are subject to margin deposit requirements. Such
requirements may cause investors to close futures contracts through offsetting
transactions which could distort the normal relationship between the underlying
index and futures markets. Second, the margin requirements in the futures
markets are less onerous than margin requirements in the securities markets in
general, and as a result the futures markets may attract more speculators than
the securities markets do. Increased participation by speculators in the futures
markets may also cause temporary price distortions. Due to the possibility of
price distortion, even a correct forecast of general market trends by a
Portfolio's investment adviser may still not result in a successful hedging
transaction over a very short time period.
OTHER RISKS. A Portfolio will incur brokerage fees in connection with its
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures
11
<PAGE>
and related options, unanticipated changes in interest rates or stock price
movements may result in a poorer overall performance for the Portfolio than if
it had not entered into any futures contracts or options transactions. Moreover,
in the event of an imperfect correlation between the futures position and the
portfolio position which is intended to be protected, the desired protection may
not be obtained and the Portfolio may be exposed to risk of loss, which may be
unlimited.
REVERSE REPURCHASE AGREEMENTS
A Portfolio may enter into reverse repurchase agreements in which the
Portfolio sells securities and agrees to repurchase them at a mutually agreed
date and price. Generally, the effect of such a transaction is that the
Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
Reverse repurchase agreements may be viewed as a borrowing by the
Portfolio, secured by the security which is the subject of the agreement. In
addition to the general risks involved in leveraging, reverse repurchase
agreements involve the risk that, in the event of the bankruptcy or insolvency
of the Portfolio's counterparty, the Portfolio would be unable to recover the
security which is the subject of the agreement, the amount of cash or other
property transferred by the counterparty to the Portfolio under the agreement
prior to such insolvency or bankruptcy is less than the value of the security
subject to the agreement, or the Portfolio may be delayed or prevented, due to
such insolvency or bankruptcy, from using such cash or property or may be
required to return it to the counterparty or its trustee or receiver.
LOANS OF PORTFOLIO SECURITIES
A Portfolio may lend its portfolio securities, provided: (1) the loan is
secured continuously by collateral consisting of U.S. Government Securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Portfolio may at any
time call the loan and regain the securities loaned; (3) a Portfolio will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities of any Portfolio loaned will not at any
time exceed one-third (or such other limit as the Trustee may establish) of the
total assets of the Portfolio. Cash collateral received by a Portfolio may be
invested in any securities in which the Portfolio may invest consistent with its
investment policies. In addition, it is anticipated that a Portfolio may share
with the borrower some of the income received on the collateral for the loan or
that it will be paid a premium for the loan. Before a Portfolio enters into a
loan, its investment adviser considers all relevant facts and circumstances
including the creditworthiness of the borrower. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Although voting rights or rights to consent with
respect to the loaned securities pass to the borrower, a Portfolio retains the
right to call the loans at any time on reasonable notice, and it will do so in
order that the securities may be voted by a Portfolio if the holders of such
securities are asked to vote upon or consent to matters materially affecting the
investment. A Portfolio will not lend portfolio securities to borrowers
affiliated with the Portfolio.
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<PAGE>
FOREIGN SECURITIES
A Portfolio may invest in foreign securities and in certificates of deposit
issued by United States branches of foreign banks and foreign branches of United
States banks.
Investments in foreign securities may involve considerations different from
investments in domestic securities due to limited publicly available
information, non-uniform accounting standards, lower trading volume and possible
consequent illiquidity, greater volatility in price, the possible imposition of
withholding or confiscatory taxes, the possible adoption of foreign governmental
restrictions affecting the payment of principal and interest, expropriation of
assets, nationalization, or other adverse political or economic developments.
Foreign companies may not be subject to auditing and financial reporting
standards and requirements comparable to those which apply to U.S. companies.
Foreign brokerage commissions and other fees are generally higher than in the
United States. It may be more difficult to obtain and enforce a judgment against
a foreign issuer.
In addition, to the extent that a Portfolio's foreign investments are not
United States dollar-denominated, the Portfolio may be affected favorably or
unfavorably by changes in currency exchange rates, exchange control regulations,
foreign withholding taxes and restrictions or prohibitions on the repatriation
of foreign currencies and may incur costs in connection with conversion between
currencies.
In determining whether to invest in securities of foreign issuers, the
investment advisor of a Portfolio seeking current income will consider the
likely impact of foreign taxes on the net yield available to the Portfolio and
its shareholders. Income received by a Portfolio from sources within foreign
countries may be reduced by withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. It is impossible to determine the effective rate
of foreign tax in advance since the amount of a Portfolio's assets to be
invested in various countries is not known, and tax laws and their
interpretations may change from time to time and may change without advance
notice. Any such taxes paid by a Portfolio will reduce its net income available
for distribution to shareholders.
FOREIGN CURRENCY TRANSACTIONS
A Portfolio may engage in currency exchange transactions to protect against
uncertainty in the level of future foreign currency exchange rates and to
increase current return. A Portfolio may engage in both "transaction hedging"
and "position hedging."
When it engages in transaction hedging, a Portfolio enters into foreign
currency transactions with respect to specific receivables or payables of the
Portfolio generally arising in connection with the purchase or sale of its
portfolio securities. A Portfolio will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging a Portfolio will attempt
to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received.
A Portfolio may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. A
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
13
<PAGE>
For transaction hedging purposes a Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives a Portfolio the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives a Portfolio the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives a Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives a Portfolio the right to purchase a
currency at the exercise price until the expiration of the option. A Portfolio
will engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of its
investment adviser, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.
When it engages in position hedging, a Portfolio enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Portfolio are denominated or
are quoted in their principle trading markets or an increase in the value of
currency for securities which a Portfolio expects to purchase. In connection
with position hedging, a Portfolio may purchase put or call options on foreign
currency and foreign currency futures contracts and buy or sell forward
contracts and foreign currency futures contracts. A Portfolio may also purchase
or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of a
Portfolio's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Portfolio is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of a Portfolio if the market value of such security or securities
exceeds the amount of foreign currency the Portfolio is obligated to deliver.
To offset some of the costs to a Portfolio of hedging against fluctuations
in currency exchange rates, the Portfolio may write covered call options on
those currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the increase in
the value of such currency.
A Portfolio may also seek to increase its current return by purchasing and
selling foreign currency on a spot basis, and by purchasing and selling options
on foreign currencies and on foreign currency futures contracts, and by
purchasing and selling foreign currency forward contracts.
14
<PAGE>
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
as agreed by the parties, at a price set at the time of the contract. In the
case of a cancelable forward contract, the holder has the unilateral right to
cancel the contract at maturity by paying a specified fee. The contracts are
traded in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in a given month.
Forward contracts may be in any amounts agreed upon by the parties rather than
predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may be
closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Portfolio will normally purchase
or sell foreign currency futures contracts and related options only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position and,
in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin on its futures
positions.
FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when a
Portfolio's investment adviser believes that a liquid secondary market exists
for such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence exchange rates
and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot
15
<PAGE>
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to a Portfolio's
investments in foreign securities and to a Portfolio's foreign currency exchange
transactions may be more complex than settlements with respect to investments in
debt or equity securities of U.S. issuers, and may involve certain risks not
present in a Portfolio's domestic investments. For example, settlement of
transactions involving foreign securities or foreign currency may occur within a
foreign country, and a Portfolio may be required to accept or make delivery of
the underlying securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay any fees, taxes
or charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio
at one rate, while offering a lesser rate of exchange should a Portfolio desire
to resell that currency to the dealer.
CONVERTIBLE SECURITIES
A Portfolio may invest in convertible securities. Convertible securities
are generally fixed-income securities which may be exchanged for or converted
into a predetermined number of shares of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants, or securities
offering a combination of several of these features. The investment
characteristics of convertible securities vary widely, which allows convertible
securities to be employed for a variety of investment strategies.
A Portfolio will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock when, in its Adviser's
opinion, the investment characteristics of the underlying common stock will
assist the Portfolio in achieving its investment objectives. In selecting
convertible securities for a Portfolio, the Portfolio's Adviser evaluates the
investment characteristics of the convertible security as a fixed-income
instrument and the investment potential of the underlying equity security for
capital appreciation.
SWAPS, CAPS, FLOORS, AND COLLARS
A Portfolio may enter into interest rate, currency, and index swaps and may
buy and sell caps, floors, and collars. A Portfolio would enter into these
transactions primarily to preserve a return or spread on a particular
16
<PAGE>
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique, or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. A Portfolio would not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Portfolio may be obligated to pay. To the extent that use of such instruments
may result in the creation of investment leverage, a Portfolio expects to
segregate assets with its custodian to the extent required by applicable law.
Interest rate swaps involve the exchange by a Portfolio with another party
of their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional
principal amount. A currency swap is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them; an index swap is an agreement to swap cash flows on a
notional amount based on changes in the values of one or more reference indices.
A cap entitles the purchaser to receive payments on a notional principal amount
from the party selling the cap to the extent that a specified index exceeds a
predetermined level. A floor entitles the purchaser to receive payments on a
notional principal amount from the party selling the floor to the extent that a
specified index falls below a predetermined level. A collar is a combination of
a cap and a floor intended to preserve a return within a predetermined range of
interest rates or values.
A Portfolio will not enter into any swap, cap, floor, or collar transaction
unless, at the time of entering into the transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least A by S&P or Moody's or has an equivalent rating from another nationally
recognized securities rating organization or, if unrated, is determined to be of
comparable credit quality by the Portfolio's Adviser.
Because the payment obligations of parties to swap, cap, floor, and collar
transactions are determined on the basis of notional principal amounts, such
transactions entail investment leverage. As a result, the value of a Portfolio's
positions in such transactions may, depending on the terms of the transaction,
be extremely volatile and may result in losses to the Portfolio.
Swap, cap, floor, and collar transactions are privately negotiated
transactions, and involve the risk that a Portfolio's counterparty will be
unable to meet its obligations to the Portfolio. In addition, a Portfolio may
under certain circumstances be unable to transfer or to terminate its position
in such a transaction; in such circumstances, the Portfolio might have to
maintain the position at a time when it might otherwise previously have
terminated it, or may only be able to terminate or transfer the position on
terms less favorable to its than might otherwise have been anticipated.
LOWER-RATED SECURITIES
A Portfolio may invest in lower-rated fixed-income securities (commonly
known as "junk bonds") to the extent described in the relevant Prospectus. The
lower ratings of certain securities held by a Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by a Portfolio more volatile and could limit the Portfolio's ability to
sell its securities at prices approximating the values the Portfolio had placed
on such securities. In the absence of a liquid trading market for securities
held by it, a Portfolio may be unable at times to establish the fair value of
such securities. The rating assigned to a security by Moody's Investors Service,
Inc. or
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<PAGE>
Standard & Poor's (or by any other nationally recognized securities rating
organization) does not reflect an assessment of the volatility of the security's
market value or the liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in the value
of portfolio securities generally will not affect cash income derived from such
securities, but will affect the Portfolio's net asset value. A Portfolio will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although its Adviser will monitor the investment
to determine whether its retention will assist in meeting the Portfolio's
investment objective.
The amount of information about the financial condition of an issuer of tax
exempt securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded. Therefore, to the extent a
Portfolio invests in tax exempt securities in the lower rating categories, the
achievement of the Portfolio's goals is more dependent on its Advisor's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.
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<PAGE>
MANAGEMENT OF THE TRUST
The following table provides biographical information with respect to each
Trustee and officer of the Trust. Each Trustee who is an "interested person" of
the Trust, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------------- -------------- ---------------------------------------------------------------
<S> <C> <C>
Daniel J. Ludeman* (41) Chairman Chairman and Chief Executive Officer, Mentor Investment
c/o Mentor Institutional Trust and Trustee Group, Inc.; Chairman and Director Mentor Income Fund,
901 E. Byrd Street Inc., and America's Utility Fund, Inc.; Chairman and
Richmond, VA 23219 Trustee, Cash Resource Trust, Mentor Variable Investment
Portfolios and Mentor.
Arnold H. Dreyfuss (70) Trustee Chairman, Eskimo Pie Corporation; Trustee, Cash Resource
P.O. Box 18156 Trust, Mentor Variable Investment Portfolios and Mentor
Richmond, Virginia 23226 Funds; Director, Mentor Income Fund, Inc. and America's
Utility Fund, Inc.; formerly, Chairman and Chief Executive
Officer, Hamilton Beach/Proctor-Silex, Inc.
Thomas F. Keller (67) Trustee R.J. Reynolds Industries Professor of Business Adminis-
Fuqua School of Business tration and Former Dean of Fuqua School of Business, Duke
Duke University University; Director of LADD Furniture, Inc., Wendy's
Durham, NC 27706 International, Inc., American Business Products, Inc., Dimon,
Inc., and Biogen, Inc.; Director of Nations Balanced
Target Maturity Fund, Inc., Nations Government Income
Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc., Hatteras Income Securities,
Inc., Nations Institutional Reserves, Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios,
Inc., and Nations LifeGoal Funds, Inc. Trustee, Cash
Resource Trust, Mentor Variable Investment
Portfolios and Mentor Funds; Director, Mentor Income
Fund, Inc. and America's Utility Fund, Inc.
Louis W. Moelchert, Jr. (57) Trustee Vice President for Investments, University of Richmond;
University of Richmond Trustee, Cash Resource Trust, Mentor Variable Investment
Richmond, VA 23173 Portfolios and Mentor Funds; Director, Mentor Income Fund,
Inc. and America's Utility Fund, Inc.
Troy A. Peery, Jr. (52) Trustee Trustee, Cash Resource Trust, Mentor Variable Investment
Heilig-Meyers Company Portfolios and Mentor Funds; Director, Mentor Income Fund,
2235 Staples Mill Road Inc. and America's Utility Fund, Inc. Formerly, President,
Richmond, Virginia 23230 Heilig-Meyers Company.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------------- -------------- ------------------------------------------------------------
<S> <C> <C>
Peter J. Quinn, Jr.* (38) Trustee Managing Director, Mentor Investment Group, LLC, and
c/o Mentor Institutional Trust Mentor Services Company, Inc.; Trustee, Cash Resource
901 E. Byrd Street Trust, Mentor Variable Investment Portfolios and Mentor
Richmond, VA 23219 Funds; Director, Mentor Income Fund, Inc. and
America's Utility Fund, Inc.
Arch T. Allen, III (58) Trustee Attorney at law, Raleigh, North Carolina; Trustee, Cash
c/o Mentor Institutional Trust Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Funds; Director, Mentor Income Fund, Inc. and
Richmond, VA 23219 America's Utility Fund, Inc.; formerly, Vice Chancellor for
Development and University Relations, University of North
Carolina at Chapel Hill.
Weston E. Edwards (64) Trustee President, Weston Edwards & Associates; Trustee Cash
c/o Mentor Institutional Trust Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Funds; Director, Mentor Income Fund, Inc. and
Richmond, VA 23219 America's Utility Fund, Inc.; Founder and Chairman, The
Housing Roundtable; formerly, President, Smart Mortgage
Access, Inc.
Jerry R. Barrentine (64) Trustee President, J.R. Barretine & Associates; Trustee, Cash
c/o Mentor Institutional Trust Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Funds; Director, Mentor Income Fund, Inc. and
Richmond, VA 23219 America's Utility Fund, Inc.; formerly, Executive Vice
President and Chief Financial Officer, Barclays/American
Mortgage Director Corporation; Managing Partner, Barrentine
Lott & Associates.
J. Garnett Nelson (59) Trustee Consultant, Mid-Atlantic Holdings, LLC; Trustee, Cash
c/o Mentor Institutional Trust Resource Trust, Mentor Variable Investment Portfolios and
901 E. Byrd Street Mentor Funds; Director, Mentor Income Fund, Inc.,
Richmond, VA 23219 America's Utility Fund, Inc., GE Investment Funds, Inc.,
and Lawyers Title Corporation; Member, Investment
Advisory Committee, Virginia Retirement System; formerly,
Senior Vice President, The Life Insurance Company of
Virginia.
Paul F. Costello (38) President Managing Director,Mentor Investment Group, LLC,
c/o Mentor Institutional Trust President, Cash Resource Trust, Mentor Income Fund, Inc.,
901 E. Byrd Street Mentor Institutional Trust, Mentor Variable Investment
Richmond, VA 23219 Portfolios and America's Utility Fund, Inc.; Director, Mentor
Perpetual Advisors, LLC.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION HELD
NAME AND ADDRESS WITH A FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- -------------------------------- -------------- -----------------------------------------------------------
<S> <C> <C>
Terry L. Perkins (52) Treasurer, Senior Vice President and Treasurer, Mentor Investment Group, LLC;
c/o Mentor Institutional Trust Secretary Treasurer, Mentor Funds, Cash Resource Trust, Mentor
901 E. Byrd Street Variable Investment Portfolios, Mentor Income Fund, Inc.
Richmond, VA 23219
Michael Wade (32) Assistant Vice President and Controller, Mentor Investment Group, LLC Assistant
c/o Mentor Institutional Trust Treasurer Treasurer, Mentor Income Fund, Inc., Cash Resource Trust,
901 E. Byrd Street Mentor Funds, Mentor Variable Investment Portfolios and
Richmond, VA 23219 America's Utility Fund.
</TABLE>
The table below shows the fees paid to each Trustee by the Trust for the
1998 fiscal year and the fees paid to each Trustee by all funds in the Mentor
family (including the Trust) during the 1998 calendar year.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM ALL
FROM THE TRUST COMPLEX FUNDS (27 FUNDS)
(FISCAL YEAR END 1998) (CALENDAR YEAR 1998)
------------------------ ----------------------------
<S> <C> <C>
Daniel J. Ludeman ............... $ 0 $ 0
Arnold H. Dreyfuss .............. $1,261 $34,000
Thomas F. Keller ................ $1,147 $29,000
Louis W. Moelchert, Jr. ......... $1,261 $33,000
J. Garnett Nelson ............... $1,255 $40,000
Troy A. Peery, Jr. .............. $1,261 $32,000
Peter J. Quinn, Jr. ............. $ 0 $ 0
Jerry R. Barrentine ............. $1,255 $41,000
Weston E. Edwards ............... $1,255 $42,000
Arch T. Allen III ............... $1,255 $35,000
</TABLE>
- ----------
The Trustees do not receive pension or retirement benefits from the Trust.
The Declaration of Trust of the Trust provides that the Trust will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Trust, except if it is determined in the manner specified in
the Agreement and Declaration of Trust that they have not acted in good faith in
the reasonable belief that their actions were in the best interests of the Trust
or that such indemnification would relieve any officer or Trustee of any
liability to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of his or her duties. The Trust,
at its expense, provides liability insurance for the benefit of its Trustees and
officers.
21
<PAGE>
PRINCIPAL HOLDERS OF SECURITIES
As of February 23, 1999, the officers and Trustees of the Trust owned as a
group less than one percent of the outstanding shares of each Portfolio. To the
knowledge of the Trust, no person owned of record or beneficially more than 5%
of the outstanding shares of any Portfolio as of that date, except the
following:
<TABLE>
<CAPTION>
PORTFOLIO HOLDER PERCENTAGE OWNERSHIP
- ---------------------------- ------------------------------------ ---------------------
<S> <C> <C>
U.S. Govt. Cash Management 4 Front Technologies Inc. 11.13%
(Institutional/Class Y Shares) Attn: Craig Kleinman
6300 S. Syracuse Way, Ste. 293
Englewood, CO 80111-6720
County of Augusta 10.64%
PO Box 1997
Richmond, VA 23218-1357
TBA Entertainment Corporation 10.09%
ATTN: Bryan J. Cusworth CFO
16501 Ventura Blvd., Ste 601
Encino, CA 91436-2072
Earthshell Corporation 9.41%
111 S. Calvert St., Ste. 1950
Baltimore, MD 21202-6174
Bassett Furniture Industries, Inc. 5.72%
Attn: Jane Wilson
3525 Fairystone Park Hwy
PO Box 626
Bassett, VA 24055
Framers Telephone Coop Inc. 5.31%
PO Box 1357
Richmond, VA 23218-1357
Fixed Income Seabury & Smith 8.18%
(Institutional/Class Y Shares) KVI & Coda Escrow
PO Box 1357
Richmond, VA 23218-1357
International Arthur Millman 54.07%
(Institutional/Class Y Shares) Madeline Millman JT WROS
PO Box 567
Isle of Palms, SC 29451-0567
Stanley Picheny 27.82%
322 Central Park West
New York, NY 10025-7629
First Clearing Corporation 11.68%
A/C 2254-7301
The Gladys & Franklin Clark
Foundation #1
c/o Gilbert A. Bartlett
809 Richmond Rd.
International Key Trust Co Ttee 99.69%
(E Shares) RPM Inc U/A DTD 11/26/87
Attn: Martin Currie
PO Box 94871
Cleveland OH 44101-4871
</TABLE>
22
<PAGE>
INVESTMENT ADVISORY SERVICES
Mentor Investment Advisors, LLC ("Mentor Advisors") serves as investment
adviser to the Fixed-Income Portfolio and U.S. Government Cash Management
Portfolio; Mentor Perpetual Advisors, LLC serves as investment adviser to the
International Portfolio.
Mentor Advisors has over $15 billion in assets under management and is a
wholly owned subsidiary of Mentor Investment Group, LLC ("Mentor Investment
Group") and its affiliates. Mentor Investment Group is a subsidiary of Wheat
First Butcher Singer, Inc., which is in turn a wholly owned subsidiary of First
Union Corp. ("First Union"). First Union is a leading financial services company
with approximately $234 billion in assets and $17 billion in total stockholders'
equity as of September 30, 1998. EVEREN Capital Corporation has a 20% ownership
in Mentor Investment Group and may acquire additional ownership based
principally on the amount of Mentor's revenues derived from assets attributable
to clients of EVEREN Securities, Inc. and its affiliates.
Mentor Perpetual, an investment advisory firm organized in 1995, is owned
equally by Perpetual plc, a diversified financial services holding company, and
Mentor Advisors. The Perpetual organization currently serves as investment
adviser for assets of more than $14 billion. Its clients include 28 unit and
investment trusts and other public investment pools including private
individuals, charities, pension plans, and life assurance companies.
Mentor Advisors and Mentor Perpetual together serve as investment adviser
to 27 separate investment portfolios in the Mentor Family of Funds, including
those offered by this Prospectus. For a prospectus relating to certain of these
other investment portfolios, and for information concerning your eligibility to
purchase shares of those portfolios, contact Mentor Services Company.
On October 31, 1996, Commonwealth Investment Counsel, Inc., the previous
investment adviser to the U.S. Government Cash Management and Fixed-Income
Portfolios, was reorganized as Mentor Investment Advisors, LLC.
Each of Mentor Advisors and Mentor Perpetual acts as investment adviser to
its respective Portfolio(s) pursuant to a Management Contract with the Trust.
Subject to the supervision and direction of the Trustees, each investment
adviser manages a Portfolio's portfolio in accordance with the stated policies
of that Portfolio and of the Trust. The investment advisers make investment
decisions for the Portfolios and place the purchase and sale orders for
portfolio transactions. Each investment adviser bears all of its expenses in
connection with the performance of its services. In addition, the investment
advisers pay the salaries of all officers and employees who are employed by them
and the Trust.
The investment advisers provide the Portfolios with investment officers who
are authorized to execute purchases and sales of securities. Investment
decisions for the Portfolios and for the other investment advisory clients of an
investment adviser and its affiliates are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought or sold for certain clients even
though it could have been bought or sold for other clients at the same time.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In some instances, one client
may sell a particular security to another client. It also sometimes happens that
two or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in an
investment adviser's opinion is
23
<PAGE>
equitable to each and in accordance with the amount being purchased or sold by
each. There may be circumstances when purchases or sales of portfolio securities
for one or more clients will have an adverse effect on other clients. In the
case of short-term investments, the Treasury area of Wheat First Butcher Singer
handles purchases and sales under guidelines approved by investment officers of
the Trust. The investment advisers employ professional staffs of portfolio
managers who draw upon a variety of resources, including Wheat, First
Securities, Inc., an affiliate of the investment advisers, for research
information for their respective Portfolios.
The proceeds received by each Portfolio for each issue or sale of its
shares, and all income, earnings, profits, and proceeds thereof, subject only to
the rights of creditors, will be specifically allocated to such Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated on the Trust's books of account, and will be
charged with the liabilities in respect of such Portfolio and with a share of
the general liabilities of the Trust. Expenses with respect to any two or more
Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can otherwise
be fairly made.
Expenses incurred in the operation of a Portfolio or otherwise allocated to
a Portfolio, including but not limited to taxes, interest, brokerage fees and
commissions, fees to Trustees who are not officers, directors, stockholders, or
employees of Wheat First Butcher Singer and subsidiaries, SEC fees and related
expenses, state Blue Sky qualification fees, charges of the custodian and
transfer and dividend disbursing agents, outside auditing, accounting, and legal
services, investor servicing fees and expenses, charges for the printing of
prospectuses and statements of additional information for regulatory purposes or
for distribution to shareholders, certain shareholder report charges and charges
relating to corporate matters are borne by the Portfolio.
Each of the Management Contracts is subject to annual approval by (i) the
Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the affected Portfolio, provided that in either
event the continuance is also approved by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or the investment
adviser in question, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Management Contracts are terminable without
penalty, on not more than sixty days' notice and not less than thirty days'
notice, by the Trustees, by vote of the holders of a majority of the affected
Portfolio's shares, or by the investment adviser. Each terminates automatically
in the event of its assignment (as defined in the 1940 Act).
Under their Management Contracts, neither of the Fixed-Income or U.S.
Government Cash Management Portfolios pays a management fee. Under its
Management Contract, the International Portfolio pays a monthly fee to Mentor
Perpetual based on the average net assets of that Portfolio, as determined at
the close of each business day during the month at the annual rate of 1.00% of
average net assets.
For the fiscal periods indicated, the International Portfolio paid
management fees (net of fee waiver) and Mentor Perpetual waived management fees
in respect of the International Portfolio in the following amounts:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Fees paid ............ $664,781 $ 85,485 $12,402
Fees waived .......... $318,510 $137,516 $23,292
</TABLE>
24
<PAGE>
Mentor Advisors bore expenses in respect of the U.S. Government Cash
Management Portfolio and Fixed-Income Portfolio in the following amounts for the
fiscal periods indicated:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
U.S. Government Cash Management Portfolio .......... $116,808 $66,203 $70,426
Fixed-Income Portfolio ............................. $ 70,518 $24,294 $44,556
</TABLE>
ADMINISTRATIVE SERVICES
Mentor Investment Group, LLC ("Mentor Investment Group") serves as
administrator to the Portfolios pursuant to an Administration Agreement with the
Trust. None of the Portfolios pays any fees under the Agreement, except Mentor
Perpetual International Portfolio, which pays administrative service fees to
Mentor Investment Group at the annual rate of 0.10% of its average daily net
assets. Mentor Investment Group has agreed to bear certain expenses of the
Portfolios pursuant to a voluntary expense limitation currently in effect. This
limitation may be terminated at any time.
Pursuant to the Administration Agreement, Mentor Investment Group provides
continuous business management services to the Portfolios and, subject to the
general oversight of the Trustees, manages all of the business and affairs of
the Portfolios subject to the provisions of the Trust's Declaration of Trust,
By-laws and the 1940 Act, and other policies and instructions the Trustees may
from time to time establish. Mentor Investment Group pays the compensation of
all officers and executive employees of the Trust (except those employed by or
serving at the request of an investment adviser) and makes available to the
Trust the services of its directors, officers, and employees as elected by the
Trustees or officers of the Trust. In addition, Mentor Investment Group provides
all clerical services relating to the Portfolios' business. Mentor Investment
Group bears all of its expenses in connection with the performance of its
services, and does not receive a fee from the Portfolios for its services.
The Administration Agreement must be approved at least annually with
respect to each Portfolio by a vote of a majority of the Trustees who are not
interested persons of Mentor Investment Group or the Trust. The Agreement may be
terminated at any time without penalty on 30 days notice by Mentor Investment
Group, or immediately in respect of any Portfolio upon notice by the Trustees or
by vote of a majority of the outstanding voting securities of that Portfolio.
The Agreement terminates automatically in the event of its assignment (as
defined in the 1940 Act) in respect of a particular Portfolio.
For the period April 1, 1998 through October 31, 1998, Mentor Perpetual
International Portfolio paid fees to Mentor Investment Group under the
Administration Agreement in the amount of $63,564, which was calculated at the
rate of 0.10% of average daily net assets. Prior to April 1, 1998, Mentor
Perpetual International Portfolio paid no fees under the Administration
Agreement.
SHAREHOLDER SERVICING PLAN
The Trust has adopted a Shareholder Servicing Plan (the "Service Plan")
with Mentor Distributors, LLC ("Mentor Distributors") with respect to the
International Portfolio's Class A shares, Class B shares, and Class E shares.
Pursuant to the Service Plan, financial institutions will enter into shareholder
service agreements with the International Portfolio to provide administrative
support services to their customers who from time to time may be record or
beneficial owners of shares of the International Portfolio. In return for
providing these support
25
<PAGE>
services, a financial institution may receive payments from Mentor Distributors
at a rate not exceeding 0.25% of the average daily net assets of the Class A,
Class B shares, and Class E shares, as the case may be, of the International
Portfolio owned by the financial institution's customers for whom it is the
holder of record or with whom it has a servicing relationship. The Service Plan
is designed to stimulate financial institutions to render administrative support
services to the International Portfolio and its shareholders. These
administrative support services include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer personnel as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
International Portfolio; assisting clients in changing dividend options, account
designations and addresses; and providing such other services as the
International Portfolio reasonably requests. The Plan (and any agreement entered
into pursuant to the Plan) may be terminated at any time by (i) a vote of the
majority of the Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act), (ii) a vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of a particular class, or (iii) Mentor
Distributors on 60 days notice.
The International Portfolio paid shareholder service fees to Mentor
Distributors in the amounts $203,505, $22,421, and $0 during the fiscal years
ended October 31, 1998, October 31, 1997 and October 31, 1996, respectively.
In addition to receiving payments under the Service Plan, financial
institutions may be compensated by the investment adviser and/or Mentor
Investment Group, or affiliates thereof, for providing administrative support
services to holders of Class A, Class B, and Class E shares of the International
Portfolio. These payments will be made directly by the investment adviser and/or
Mentor Investment Group, as applicable, and will not be made from the assets of
the International Portfolio.
BROKERAGE
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by a Portfolio of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Portfolio usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the
Portfolio includes a disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and sales of
portfolio securities by Portfolios investing primarily in certain fixed-income
securities will be with the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those Portfolios would not
ordinarily pay significant brokerage commissions with respect to securities
transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")), from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, the investment advisers receive brokerage and research services and
other similar
26
<PAGE>
services from many broker-dealers with which they place the Portfolios'
portfolio transactions and from third parties with which these broker-dealers
have arrangements. These services include such matters as general economic and
market reviews, industry and company reviews, evaluations of investments,
recommendations as to the purchase and sale of investments, newspapers,
magazines, pricing services, quotation services, news services and personal
computers utilized by the investment advisers' managers and analysts. Where the
services referred to above are not used exclusively by an investment adviser for
research purposes, the investment adviser, based upon its own allocations of
expected use, bears that portion of the cost of these services which directly
relates to its non-research use. Some of these services are of value to an
investment adviser and its affiliates in advising various of its clients
(including the Portfolios), although not all of these services are necessarily
useful and of value in managing the Portfolios.
The investment advisers place all orders for the purchase and sale of
portfolio investments for the Portfolios and buy and sell investments for the
Portfolios through a substantial number of brokers and dealers. The investment
advisers seek the best overall terms available for the Portfolios, except to the
extent they may be permitted to pay higher brokerage commissions as described
below. In doing so, an investment adviser, having in mind a Portfolio's best
interests, considers all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security or other investment, the amount of the commission, the timing of
the transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the Management
Contracts, the investment advisers may cause the Portfolios to pay a
broker-dealer which provides "brokerage and research services" (as defined in
the 1934 Act) to them an amount of disclosed commission for effecting securities
transactions on stock exchanges and other transactions for the Portfolio on an
agency basis in excess of the commission which another broker-dealer would have
charged for effecting that transaction. The investment advisers' authority to
cause a Portfolio to pay any such greater commissions is also subject to such
policies as the Trustees may adopt from time to time. The investment advisers do
not currently intend to cause a Portfolio to make such payments. It is the
position of the staff of the Securities and Exchange Commission that Section
28(e) does not apply to the payment of such greater commissions in "principal"
transactions. Accordingly, the investment advisers will use their best efforts
to obtain the best overall terms available with respect to such transactions, as
described above.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to such other policies as the Trustees may
determine, the investment advisers may consider sales of shares of a Portfolio
(and, if permitted by law, of the other Mentor funds) as a factor in the
selection of broker-dealers to execute portfolio transactions for a Portfolio.
The Trustees have determined that portfolio transactions for the Trust may
be effected through Wheat, First Securities, Inc. ("Wheat"), First Union
Brokerage Services ("FUBS"), and EVEREN Securities, Inc. ("EVEREN"),
broker-dealers affiliated with Mentor Advisors and Mentor Perpetual. The
Trustees have adopted certain policies incorporating the standards of Rule 17e-1
issued by the SEC under the 1940 Act which requires, among other things, that
the commissions paid to Wheat, FUBS, and EVEREN must be reasonable and fair
compared to the commissions, fees, or other remuneration received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time. Wheat, FUBS, and EVEREN will not participate
in brokerage commissions given by a Portfolio to other brokers or dealers.
Over-the-counter purchases and
27
<PAGE>
sales are transacted directly with principal market makers except in those cases
in which better prices and executions may be obtained elsewhere. A Portfolio
will in no event effect principal transactions with Wheat, FUBS, and EVEREN in
over-the-counter securities in which Wheat, FUBS, or EVEREN makes a market.
Under rules adopted by the SEC, Wheat, FUBS, and EVEREN may not execute
transactions for a Portfolio on the floor of any national securities exchange,
but may effect transactions for a Portfolio by transmitting orders for execution
and arranging for the performance of this function by members of the exchange
not associated with them. Wheat, FUBS, and EVEREN will be required to pay fees
charged to those persons performing the floor brokerage elements out of the
brokerage compensation they receive from a Portfolio. The Trust has been advised
by Wheat that on most transactions, the floor brokerage generally constitutes
from 5% and 10% of the total commissions paid.
BROKERAGE COMMISSIONS
The Portfolios paid brokerage commissions on brokerage transactions in the
following amounts for the periods indicated:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Fixed-Income Portfolio ............................ -- -- --
U.S. Government Cash Management Portfolio ......... -- -- --
International Portfolio ........................... $733,000 $19,591 $57,678
</TABLE>
None of the Portfolios paid brokerage commissions to Wheat, EVEREN or FUBS
for the periods shown above.
In the fiscal year ended October 31, 1998, Mentor Advisors, on behalf of
the Trust, placed agency and underwritten transactions having an approximate
aggregate dollar value of $10,077,617 (100% of the Trust's aggregate agency and
underwritten transactions on which approximately $733,000 of commissions were
paid) with brokers and dealers whose research, statistical and quotation
services Mentor Advisors considered to be particularly useful to it and its
affiliates. However, many of such transactions were placed with such brokers and
dealers without regard to the furnishing of such services. The increase was due
to the increase in the Portfolio's assets and to increased trading volume.
DETERMINATION OF NET ASSET VALUE
The Trust determines net asset value per share of each class of shares of
the Portfolios each day the New York Stock Exchange (the "Exchange") is open.
Currently, the Exchange is closed Saturdays, Sundays, and the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day,
Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving, and
Christmas.
MENTOR FIXED-INCOME PORTFOLIO AND MENTOR PERPETUAL INTERNATIONAL PORTFOLIO.
In respect of Mentor Fixed-Income Portfolio and Mentor Perpetual International
Portfolio, securities for which market quotations are readily available are
valued at prices which, in the opinion of the Trustees or a Portfolio's
investment adviser, most nearly represent the market values of such securities.
Currently, such prices are determined using the last reported sale price or, if
no sales are reported (as in the case of some securities traded
over-the-counter), the last reported bid price, except that certain U.S.
Government securities are stated at the mean between the last reported bid
28
<PAGE>
and asked prices. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value. All other
securities and assets are valued at their fair value following procedures
approved by the Trustees. Liabilities are deducted from the total, and the
resulting amount is divided by the number of shares of the Portfolio
outstanding.
Reliable market quotations are not considered to be readily available for
long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and various relationships between securities which are
generally recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale, its
investment adviser determines their fair values. The fair value of such
securities is generally determined as the amount which a Portfolio could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Portfolio in connection with such disposition). In addition,
specific factors are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of the same class
(both at the time of purchase and at the time of valuation), the size of the
holding, the prices of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the issuer.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of a particular class of shares are computed as of such times. Also, because of
the amount of time required to collect and process trading information as to
large numbers of securities issues, the values of certain securities (such as
convertible bonds, U.S. Government securities, and tax-exempt securities) are
determined based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of net
asset value. If events materially affecting the value of such securities occur
during such period, then these securities will be valued at their fair value
following procedures approved by the Trustees.
MENTOR U.S. GOVERNMENT CASH MANAGEMENT PORTFOLIO ONLY. The valuation of
Mentor U.S. Government Cash Management Portfolio's portfolio securities is based
upon its amortized cost, which does not take into account unrealized securities
gains or losses. This method involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. By using amortized cost valuation, the Portfolio seeks
to maintain a constant net asset value of $1.00 per share, despite minor shifts
in the market value of its portfolio securities. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Portfolio
would receive if it sold the instrument. During periods of declining interest
rates, the quoted yield on shares of the Portfolio may tend to be higher than a
like computation made by a fund with identical investments utilizing a method of
valuation
29
<PAGE>
based on market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Portfolio resulted in a
lower aggregate portfolio value on a particular day, a prospective investor in
the Portfolio would be able to obtain a somewhat higher yield if he purchased
shares of the Portfolio on that day, than would result from investment in a fund
utilizing solely market values, and existing investors in the Portfolio would
receive less investment income. The converse would apply on a day when the use
of amortized cost by the Portfolio resulted in a higher aggregate portfolio
value. However, as a result of certain procedures adopted by the Trust, the
Trust believes any difference will normally be minimal.
The valuation of the Portfolio's portfolio instruments at amortized cost is
permitted in accordance with Securities and Exchange Commission Rule 2a-7 and
certain procedures adopted by the Trustees. Under these procedures, a Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 397 days or less, and
invest in securities determined by the Trustees to be of high quality with
minimal credit risks. The Trustees have also established procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price per share as
computed for the purpose of distribution, redemption and repurchase at $1.00.
These procedures include review of the Portfolio's portfolio holdings by the
Trustees, at such intervals as they may deem appropriate, to determine whether a
Portfolio's net asset value calculated by using readily available market
quotations deviates from $1.00 per share, and, if so, whether such deviation may
result in material dilution or is otherwise unfair to existing shareholders. In
the event the Trustees determine that such a deviation may result in material
dilution or is otherwise unfair to existing shareholders, they will take such
corrective action as they regard as necessary and appropriate, including the
sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity; withholding dividends;
redemption of shares in kind; or establishing a net asset value per share by
using readily available market quotations.
Since the net income of the Portfolio is declared as a dividend each time
it is determined, the net asset value per share of the Portfolio remains at
$1.00 per share immediately after such determination and dividend declaration.
Any increase in the value of a shareholder's investment in the Portfolio
representing the reinvestment of dividend income is reflected by an increase in
the number of shares of the Portfolio in the shareholder's account on the last
day of each month (or, if that day is not a business day, on the next business
day). It is expected that the Portfolio's net income will be positive each time
it is determined. However, if because of realized losses on sales of portfolio
investments, a sudden rise in interest rates, or for any other reason the net
income of the Portfolio determined at any time is a negative amount, the
Portfolio will offset such amount allocable to each then shareholder's account
from dividends accrued during the month with respect to such account. If at the
time of payment of a dividend by the Portfolio (either at the regular monthly
dividend payment date, or, in the case of a shareholder who is withdrawing all
or substantially all of the shares in an account, at the time of withdrawal),
such negative amount exceeds a shareholder's accrued dividends, the Portfolio
will reduce the number of outstanding shares by treating the shareholder as
having contributed to the capital of the Portfolio that number of full and
fractional shares which represent the amount of the excess. Each shareholder is
deemed to have agreed to such contribution in these circumstances by its
investment in the Portfolio.
Should the Portfolio incur or anticipate any unusual or unexpected
significant expense or loss which would affect disproportionately the
Portfolio's income for a particular period, the Trustees would at that time
consider whether to adhere to the dividend policy described above or to revise
it in light of the then prevailing circumstances in order to ameliorate to the
extent possible the disproportionate effect of such expense or loss on then
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existing shareholders. Such expenses or losses may nevertheless result in a
shareholder's receiving no dividends for the period during which the shares are
held and receiving upon redemption a price per share lower than that which was
paid.
TAX STATUS
Each Portfolio intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders. A Portfolio will not under present law be subject
to any excise or income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, gains from the sale or
other dispositions of stock, securities, or foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies, and (b) diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the market value of its total assets
consists of cash, cash items, U.S. Government Securities, securities of other
regulated investment companies, and other securities limited generally with
respect to any one issuer to not more than 5% of the total assets of the
Portfolio and not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities (other than those of the U.S. Government or other regulated
investment companies) of any issuer or of two or more issuers which the
Portfolio controls and which are engaged in the same, similar, or related trades
or businesses. In order to receive the favorable tax treatment accorded
regulated investment companies and their shareholders, moreover, a Portfolio
must in general distribute annually at least 90% of the sum of its taxable net
investment income, its net tax-exempt income, and the excess, if any, of net
short-term capital gains over net long-term capital losses for such year. To
satisfy these requirements, a Portfolio may engage in investment techniques that
affect the amount, timing, and character of its income and distributions.
If a Portfolio failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the Portfolio would be subject to tax
on its taxable income at corporate rates, and all distributions from earnings
and profits, including any distributions of net tax-exempt income and net
long-term capital gains, would be taxable to shareholders as ordinary income. In
addition, a Portfolio could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
each Portfolio's "required distribution" over its actual distributions in any
calendar year. Generally, the "required distribution" is 98% of the Portfolio's
ordinary income for the calendar year plus 98% of its capital gain net income
recognized during the one-year period ending on October 31 plus undistributed
amounts from the prior year. Each Portfolio intends to make distributions
sufficient to avoid imposition of the excise tax. Distributions declared and
payable to shareholders of record on a date in October, November, or December
and paid by the Portfolio during the following
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January will be treated for federal tax purposes as paid by the Portfolio and
received by shareholders on December 31 of the year in which declared.
Distributions from a Portfolio will be taxable to shareholders as ordinary
income to the extent derived from the Portfolio's investment income and net
short-term gains. Net capital gain (that is, the excess of net gains from
capital assets held for more than one year over net losses from capital assets
held for not more than one year) of a Portfolio that is distributed and
designated as a capital gain dividend will be taxable to shareholders as
long-term capital gain (generally taxable to individuals at a 20% rate),
regardless of how long a shareholder has held the shares in the Portfolio.
Distributions from a Portfolio will be taxable to a shareholder whether received
in cash or in additional shares.
Distributions on a Portfolio's shares are generally subject to federal
income tax as described herein to the extent they do not exceed the Portfolio's
realized income and gains, even though such distributions may economically
represent a return of a particular shareholder's investment. Such distributions
are likely to occur in respect of shares purchased at a time when a Portfolio's
net asset value reflects gains that are either unrealized, or realized but not
distributed. Such realized gains may be required to be distributed even when a
Portfolio's net asset value also reflects unrealized losses.
If a Portfolio engages in hedging transactions, including hedging
transactions in options, futures contracts, and straddles, or other similar
transactions, it will be subject to special tax rules (including constructive
sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of
which may be to accelerate income to the Portfolio, defer losses to the
Portfolio, cause adjustments in the holding periods of the Portfolio's
securities, or convert short-term capital losses into long-term capital losses.
These rules could therefore affect the amount, timing and character of
distributions to shareholders. Each Portfolio will endeavor to make any
available elections pertaining to such transactions in a manner believed to be
in the best interests of the Portfolio.
Under federal income tax law, a portion of the difference between the
purchase price of zero-coupon securities in which a Portfolio has invested and
their stated redemption price at maturity ("original issue discount") is
considered to be income to the Portfolio each year, even though the Portfolio
will not receive cash interest payments from these securities. This original
issue discount (imputed income) will comprise a part of the net investment
income of the Portfolio which must be distributed to shareholders in order to
maintain the qualification of the Portfolio as a regulated investment company
and to avoid federal income tax at the level of the Portfolio. In order to
generate sufficient cash to make the requisite distributions, a Portfolio may be
required to sell securities that it otherwise would have continued to hold.
A Portfolio's transactions in foreign currencies, foreign
currency-denominated debt securities, and certain foreign currency options,
futures contracts, and forward contracts (and similar instruments), if any, may
give rise to ordinary income or loss to the extent such income or loss results
from fluctuations in the value of the foreign currency concerned.
Certain transactions in foreign currencies or foreign currency-denominated
instruments are likely to produce a difference between its book income and its
taxable income. If a Portfolio's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a dividend to the extent
of the Portfolio's remaining earnings and profits (including earnings and
profits arising from tax-exempt income), and thereafter as a return of capital
or as gain from the sale or exchange of a capital asset, as the case may be. If
a Portfolio's
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<PAGE>
book income is less than its taxable income, the Portfolio could be required to
make distributions exceeding book income to qualify as a regulated investment
company that is accorded special tax treatment.
If more than 50% of a Portfolio's assets at year end consists of stock or
securities of foreign corporations, the Portfolio may elect to permit
shareholders to claim a credit or deduction on their income tax returns for
their pro rata portion of qualified taxes paid by the Portfolio to foreign
countries in respect of foreign securities the Portfolio has held for at least
the minimum period specified in the Code. In such a case, shareholders will
include in gross income from foreign sources their pro rata shares of such
taxes. A shareholder's ability to claim a foreign tax credit or deduction in
respect of foreign taxes paid by the Portfolio may be subject to certain
limitations imposed by the Code as a result of which a shareholder may not get a
full credit or deduction for the amount of such taxes. Shareholders who do not
itemize on their federal income tax returns may claim a credit (but no
deduction) for such foreign taxes.
Investment by a Portfolio in certain "passive foreign investment companies"
could subject the Portfolio to a U.S. federal income tax (including interest
charges) distributions received from the company or on the proceeds from the
sale of its investment in such a company; however, in certain circumstances this
tax can be avoided by making an election to mark such investments to market
annually or to treat the passive foreign investment company as a "qualified
electing fund."
The sale, exchange or redemption of Portfolio shares may give rise to a
gain or loss. In general, any gain realized upon a taxable disposition of shares
held for more than one year will be taxed as long-term capital gain. Such gain
is, in the case of an individual, generally taxed at a 20% rate. If a
shareholder sells shares at a loss within six months of purchase, any loss will
be disallowed for federal income tax purposes to the extent of any
exempt-interest dividends received on such shares and (to the extent not so
disallowed) will be treated as long-term, rather than short-term, capital loss
to the extent of any long-term capital gain distributions received by the
shareholder with respect to the shares. All or a portion of any loss realized
upon a taxable disposition of Portfolio shares will be disallowed if other
Portfolio shares are purchased within 30 days before or after the disposition.
In such a case, the basis of the newly purchased shares will be adjusted to
reflect the disallowed loss.
Each Portfolio is required to withhold 31% of a shareholder's taxable
distributions and redemption proceeds if the shareholder does not provide the
Portfolio with a correct taxpayer identification number or fails to certify to
the Portfolio that the shareholder is not subject to such withholding, or if the
Portfolio is notified that it must withhold because the shareholder has
under-reported in the past. Shareholders who fail to furnish their current
taxpayer identification number are subject to a penalty of $50 for each such
failure unless the failure is due to reasonable cause and not willful neglect.
An individual's taxpayer identification number is his or her social security
number. Tax-exempt shareholders are not subject to these back-up withholding
rules so long as they furnish the Portfolio with a proper certification.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and related regulations currently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
regulations. The Code and regulations are subject to change by legislative or
administrative actions. Dividends, distributions and redemption proceeds also
may be subject to state, local, foreign, and other taxes. Shareholders are urged
to consult their tax advisers regarding specific questions as to federal, state,
local, or foreign taxes. The foregoing discussion relates solely to U.S. federal
income tax law. Non-U.S. investors should consult their tax advisers concerning
the tax consequences of ownership of shares of the Portfolio, including the
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possibility that distributions may be subject to a 30% United States withholding
tax (or a reduced rate of withholding provided by treaty).
THE DISTRIBUTOR
Mentor Distributors, LLC, located at 3435 Stelzer Road, Columbus, Ohio
43219, is the principal underwriter for the Portfolios' shares. Mentor
Distributors is not obligated to sell any specific amount of shares of any
Portfolio. Mentor Distributors is a wholly owned subsidiary of BISYS Fund
Services, Inc.
The International Portfolio makes payments to Mentor Distributors in
accordance with its Distribution Plan in respect of its Class B shares adopted
pursuant to Rule 12b-1 under the 1940 Act. During the fiscal year ended October
31, 1998, the International Portfolio paid fees under the Distribution Plan in
the amount of $243,187, all of which represented compensation to the
underwriter.
Continuance of the Plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested persons of
the Portfolio and who have no direct or indirect interest in the Plan or related
arrangements (the "Qualified Trustees"), cast in person at a meeting called for
that purpose. All material amendments to the Plan must be likewise approved by
the Trustees and the Qualified Trustees. The Plan may not be amended in order to
increase materially the costs which the Portfolio may bear for distribution
pursuant to such Plan without also being approved by a majority of the
outstanding Class B shares of the Portfolio. The Plan terminates automatically
in the event of its assignment and may be terminated without penalty, at any
time, by a vote of a majority of the Qualified Trustees or by a vote of a
majority of the outstanding Class B shares of the Portfolio.
If Plan payments are made to reimburse Mentor Distributors for payments to
dealers based on the average net asset value of Portfolio shares attributable to
shareholders for whom the dealers are designated as the dealer of record,
"average net asset value" attributable to a shareholder account means the
product of (i) the Portfolio's average daily share balance of the account and
(ii) the Portfolio's average daily net asset value per share (or the average
daily net asset value per share of the class, if applicable). For administrative
reasons, Mentor Distributors may enter into agreements with certain dealers
providing for the calculation of "average net asset value" on the basis of
assets of the accounts of the dealer's customers on an established day in each
quarter.
Financial institutions receiving payments from Mentor Distributors as
described above may be required to comply with various state and federal
regulatory requirements, including among others those regulating the activities
of securities brokers or dealers.
Mentor Services Company, a wholly owned subsidiary of Mentor Investment
Group, provides marketing-related services in respect of the Portfolios. Mentor
Services Company and its affiliates will receive from Mentor Distributors
substantially all amounts received or retained by Mentor Distributors in respect
of the distribution of the Portfolios' shares, including any amounts paid to
Mentor Distributors under the Portfolios' Class B Plans. In addition, Mentor
Services Company receives from Mentor Distributors an amount equal to all CDSC's
received by Mentor Distributors.
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CONTINGENT DEFERRED SALES CHARGES
During fiscal year 1998, Mentor Distributors received $22,261 in contingent
deferred sales charges in respect of shares of the International Portfolio.
UNDERWRITING COMMISSIONS
The International Portfolio paid no underwriting commissions retained by
Mentor Distributors in respect of its Class A and Class B shares for the fiscal
years 1998, 1997, and 1996 respectively.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, are the Portfolio's independent auditors, providing audit services, tax
return review, and other tax consulting services.
FINANCIAL STATEMENTS
The financial highlights in the Prospectuses for the periods indicated
which have been audited by the Trust's independent accountants, and the audited
financial statements appearing in the most current Annual Report, which is
incorporated by reference in this Statement of Additional Information, have been
so included in reliance on the report of KPMG Peat Marwick LLP, given on the
authority of said firm as experts in accounting and auditing. Copies of the
Annual Report are available upon request and without charge.
CUSTODIAN
The custodian of the Portfolios, Investors Fiduciary Trust Company, is
located at 127 West 10th Street, Kansas City, Missouri 64105. A custodian's
responsibilities include generally safeguarding and controlling a Portfolio's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on a Portfolio's investments. The custodian
does not determine the investment policies of the Trust or decide which
securities the Trust will buy or sell.
SHARES OF THE TRUST
Each share of the Trust has one vote, with fractional shares voting
proportionally. Shares of each class of a Portfolio will vote together as a
single class except when required by law or determined by the Trustees. Shares
of the Portfolio are freely transferable, are entitled to dividends as declared
by the Trustees, and, if the Portfolio each were liquidated, would receive the
net assets of the Portfolio. The Trust may suspend the sale of shares at any
time and may refuse any order to purchase shares. Although neither the
Portfolios nor the Trust is required to hold annual meetings of shareholders,
shareholders have the right to call a meeting to elect or remove Trustees, or to
take other actions as provided in the Declaration of Trust.
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PERFORMANCE INFORMATION
Mentor Fixed-Income Portfolio and Mentor Perpetual International Portfolio.
With respect to the Fixed Income Portfolio and International Portfolio, total
return for the one-, five-, and ten-year periods for each class of shares (or
for the life of a class, if shorter) is determined by calculating the actual
dollar amount of investment return on a $1,000 investment in a Portfolio at the
beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount. Total return for a period of one year is
equal to the actual return of a Portfolio during that period. Total return
calculations assume deduction of a Portfolio's maximum front-end or contingent
deferred sales charge, if any, and reinvestment of all Portfolio distributions
at net asset value per share of the relevant class on their respective
reinvestment dates.
The table below shows the total return through October 31, 1998 for the
Portfolios for the periods indicated:
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
---------- ----------------
<S> <C> <C>
Fixed-Income Portfolio ........................... 7.21% 9.26%
International Portfolio (Institutional) .......... 7.69% 7.86%
International Portfolio (Class A) ................ 7.43% 9.68%
International Portfolio (Class B) ................ 6.64% 9.16%
International Portfolio (Class E) ................ N/A 10.67%
</TABLE>
The yield for each class of shares of a Portfolio is presented for a
specified thirty-day period (the "base period"). Yield is based on the amount
determined by (i) calculating the aggregate amount of dividends and interest
earned by a particular class during the base period less expenses accrued for
that period, and (ii) dividing that amount by the product of (A) the average
daily number of shares of that class outstanding during the base period and
entitled to receive dividends and (B) the per share maximum public offering
price for Class A shares, if applicable, and net asset value per share for all
other classes of shares on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For this calculation,
interest earned on debt obligations held by a Portfolio is generally calculated
using the yield to maturity (or first expected call date) of such obligations
based on their market values (or, in the case of receivables-backed securities
such as GNMA's, based on cost). Dividends on equity securities are accrued daily
at their stated dividend rates.
The thirty-day yield for the Portfolio for the period ended October 31,
1998 was as follows:
<TABLE>
<CAPTION>
30-DAY YIELD
-------------
<S> <C>
Fixed-Income Portfolio .......... 5.28%
</TABLE>
Mentor Cash Management Portfolio only. The yield of the U.S. Government
Cash Management Portfolio is computed by determining the percentage net change,
excluding capital changes, in the value of an investment in one share of the
Portfolio over the base period, and multiplying the net change by 365/7 (or
approximately 52 weeks). The Portfolio's effective yield represents a
compounding of the yield by adding 1 to the number representing the percentage
change in value of the investment during the base period, raising that sum to a
power equal to 365/7, and subtracting 1 from the result.
Based on the seven-day period ended October 31, 1998, the U. S. Government
Cash Management Portfolio's yield was 4.90% and its effective yield was 5.02%.
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Total return or yield may be presented for other periods or without giving
effect to any front-end or contingent deferred sales charge. Any quotation of
total return or yield not reflecting such sales charges would be reduced if such
sales charges were reflected.
All data for each of the Portfolios are based on past performance and do
not predict future results.
Independent statistical agencies measure a Portfolio's investment
performance and publish comparative information showing how the Portfolio, and
other investment companies, performed in specified time periods. Agencies whose
reports are commonly used for such comparisons are set forth below. From time to
time, a Portfolio may distribute these comparisons to its shareholders or to
potential investors. The agencies listed below measure performance based on the
basis of their own criteria rather than on the basis of the standardized
performance measures described above.
Lipper Analytical Services, Inc. distributes mutual fund rankings monthly.
The rankings are based on total return performance calculated by Lipper,
reflecting generally changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect deduction of any sales
charges. Lipper rankings cover a variety of performance periods, for example
year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual
funds by investment objective and asset category.
Morningstar, Inc. distributes mutual fund ratings twice a month. the
ratings are divided into five groups: highest, above average, neutral, below
average and lowest. They represent a fund's historical risk/reward ratio
relative to other funds with similar objectives. The performance factor is a
weighted-average assessment of the Portfolio's 3-year, 5-year, and 10-year total
return performance (if available) reflecting deduction of expenses and sales
charges. Performance is adjusted using quantitative techniques to reflect the
risk profile of the fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria customarily employed by
rating agencies such as Standard & Poor's Corporation and Moody's Investor
Service, Inc.
Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return calculated
by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and
10-year performance. Mutual funds are ranked in general categories (e.g.,
international bond, international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of sales charges or fees.
Independent publications may also evaluate a Portfolio's performance.
Certain of those publications are listed below, at the request of Mentor
Distributors, which bears full responsibility for their use and the descriptions
appearing below. From time to time any or all of the Portfolios may distribute
evaluations by or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of information provided
by these publications.
Business Week publishes mutual fund rankings in its Investment Figures of
the Week column. The rankings are based on 4-week and 52-week total return
reflecting changes in net asset value and the reinvestment of all distributions.
They do not reflect deduction of any sales charges. Portfolios are not
categorized; they compete in a large universe of over 2,000 funds. The source
for rankings is data generated by Morningstar, Inc.
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Investor's Business Daily publishes mutual fund rankings on a daily basis.
The rankings are depicted as the top 25 funds in a given category. The
categories are based loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and income funds, corporate
bond funds, etc. Performance periods for sector equity funds can vary from 4
weeks to 39 weeks; performance periods for other fund groups vary from 1 year to
3 years. Total return performance reflects changes in net asset value and
reinvestment of dividends and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales charges Performance
grades are conferred from A+ to E. An A+ rating means that the fund has
performed within the top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%, etc.
Barron's periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical Services. The
Lipper total return data reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales charges. The
performance periods vary from short-term intervals (current quarter or
year-to-date, for example) to long-term periods (five-year or ten-year
performance, for example). Barron's classifies the funds using the Lipper mutual
fund categories, such as Capital Appreciation Portfolios, Growth Portfolios,
U.S. Government Portfolios, Equity Income Portfolios, Global Portfolios, etc.
Occasionally, Barron's modifies the Lipper information by ranking the funds in
asset classes. "Large funds" may be those with assets in excess of $25 million;
"small funds" may be those with less than $25 million in assets.
The Wall Street Journal publishes its Mutual Portfolio Scorecard on a daily
basis. Each Scorecard is a ranking of the top-15 funds in a given Lipper
Analytical Services category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and reinvestment of
distributions and not reflecting any sales charges. The Scorecard portrays
4-week, year-to-date, one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given category appear
approximately once per month.
Fortune magazine periodically publishes mutual fund rankings that have been
compiled for the magazine by Morningstar, Inc. Portfolios are placed in stock or
bond fund categories (for example, aggressive growth stock funds, growth stock
funds, small company stock funds, junk bond funds, Treasury bond funds etc.),
with the top-10 stock funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return reflecting changes in
net asset value and reinvestment of distributions and not reflecting sales
charges. Performance is adjusted using quantitative techniques to reflect the
risk profile of the fund.
Money magazine periodically publishes mutual fund rankings on a database of
funds tracked for performance by Lipper Analytical Services. The funds are
placed in 23 stock or bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net asset value and
reinvestment of all dividends and capital gains distributions and does not
reflect deduction of any sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B, etc. To be ranked, a
fund must be at least one year old, accept a minimum investment of $25,000 or
less and have had assets of at least $25 million as of a given date.
Financial World publishes its monthly Independent Appraisals of Mutual
Portfolios, a survey of approximately 1000 mutual funds. Portfolios are
categorized as to type, e.g., balanced funds, corporate bond funds, global bond
funds, growth and income funds, U.S. government bond funds, etc. To compete,
funds must be over one year old, have over $1 million in assets, require a
maximum of $10,000 initial investment, and should be
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<PAGE>
available in at least 10 states in the United States. The funds receive a
composite past performance rating, which weighs the intermediate - and long-term
past performance of each fund versus its category, as well as taking into
account its risk, reward to risk, and fees. An A+ rated fund is one of the best,
while a D- rated fund is one of the worst. The source for Financial World rating
is Schabacker investment management in Rockville, Maryland.
Forbes magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds are
categorized by type, including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper Analytical Services and
CDA Investment Technologies. The ratings are based strictly on performance at
net asset value over the given cycles. Portfolios performing in the top 5%
receive an A+ rating; the top 15% receive an A rating; and so on until the
bottom 5% receive an F rating. Each fund exhibits two ratings, one for
performance in "up" markets and another for performance in "down" markets.
Kiplinger's Personal Finance Magazine (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three- and
five-year total return performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not reflecting deduction of any
sales charges. Portfolios are ranked by tenths: a rank of 1 means that a fund
was among the highest 10% in total return for the period; a rank of 10 denotes
the bottom 10%. Portfolios compete in categories of similar funds -- aggressive
growth funds, growth and income funds, sector funds, corporate bond funds,
global governmental bond funds, mortgage-backed securities funds, etc.
Kiplinger's also provides a risk-adjusted grade in both rising and falling
markets. Portfolios are graded against others with the same objective. The
average weekly total return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk profile of the fund.
U.S. News and World Report periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch Carre & Co.,
a Boston research firm. Over 2000 funds are tracked and divided into 10 equity,
taxable bond and tax-free bond categories. Portfolios compete within the 10
groups and three broad categories. The OPI is a number from 0-100 that measures
the relative performance of funds at least three years old over the last 1, 3, 5
and 10 years and the last six bear markets. Total return reflects changes in net
asset value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges. Results for
the longer periods receive the most weight.
The 100 Best Mutual Portfolios You Can Buy (1992), authored by Gordon K.
Williamson. The author's list of funds is divided into 12 equity and bond fund
categories, and the 100 funds are determined by applying four criteria. First,
equity funds whose current management teams have been in place for less than
five years are eliminated. (The standard for bond funds is three years.) Second,
the author excludes any fund that ranks in the bottom 20 percent of its
category's risk level. Risk is determined by analyzing how many months over the
past three years the fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for current three-year and
five-year performance. Fourth, the fund must either possess, in Mr. Williamson's
judgment, "excellent" risk-adjusted return or "superior" return with low levels
of risk. Each of the 100 funds is ranked in five categories: total return,
risk/volatility, management, current income and expenses. The rankings follow a
five-point system: zero designates "poor"; one point means "fair"; two points
denote "good"; three points qualify as a "very good"; four points rank as
"superior"; and five points mean "excellent."
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SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or executed by the Trust
or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of a Portfolio's property for all loss and expense of any
shareholder held personally liable for the obligations of a Portfolio. Thus the
risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable to
meet its obligations.
MEMBERS OF INVESTMENT MANAGEMENT TEAMS
The following persons are investment personnel of the Portfolios'
investment advisers, as indicated.
MENTOR INVESTMENT ADVISORS, LLC
ACTIVE FIXED-INCOME
P. MICHAEL JONES, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Jones has 12 years of investment management experience. He is the manager of
Mentor Short-Duration Income Portfolio and Mentor Quality Income Portfolio, as
well as Mentor Income Fund, a $120 million closed-end bond fund. Mr. Jones is
responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He has worked as an investment manager at Ryland
Capital Management, Alliance Capital Management, and Central Fidelity Bank. Mr.
Jones earned an undergraduate degree from the College of William and Mary, and
an MBA from the Wharton School of the University of Pennsylvania.
DENNIS F. CLARY, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Clary joined Mentor in 1998 and has over 20 years of investment management
experience. Prior to joining Mentor's Fixed Income Team, he worked for three
years as a Vice President and Senior Portfolio Manager for First America
Investment Corporation. He previously was employed for four years as a Vice
President and Portfolio Manager at CSI Asset Management, Inc. and prior to that
for four years in a similar role by Investment & Capital Management Corporation.
Mr. Clary received his BA and MBA degrees from Ohio State University.
TIMOTHY ANDERSON, CFA -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Anderson has 8 years of investment management experience. He joined Mentor
in June, 1998. Prior to joining Mentor's Fixed-Income Team, he worked for two
years as a Senior Fixed Income Analyst at Investment Advisors, Inc. Previous to
that he was employed for five years as a Senior Investment Analyst at St. Paul
Fire & Marine Insurance Company and for two years as an Analyst for Duff &
Phelps Credit Rating Company. He received a BS degree from DePaul University and
an MBA degree from the University of Chicago.
TODD C. KUIMJIAN -- PORTFOLIO MANAGER
Mr. Kuimjian has 4 years of investment management experience. He joined the
Fixed-Income Team in January, 1997, initially as a Research Analyst and later
as a Portfolio Manager. Prior to joining the Fixed-Income Team, Mr. Kuimjian
served Mentor as an investment accountant/systems analyst and later as a senior
investment administrator within Mentor's investment services group. Mr.
Kuimjian is a Certified Public Accountant and received his BS degree from
Virginia Polytechnic Institute.
40
<PAGE>
CASH MANAGEMENT
R. PRESTON NUTTALL, CFA -- MANAGING DIRECTOR, CHIEF INVESTMENT OFFICER
Mr. Nuttall has more than 30 years of investment management experience. Prior to
Mentor Advisors, he led short-term fixed-income management for fifteen years at
Capitoline Investment Services, Inc. He has his undergraduate degree in
economics from the University of Richmond and his graduate degree in finance
from the Wharton School at the University of Pennsylvania.
HUBERT R. WHITE III -- SENIOR VICE PRESIDENT, PORTFOLIO MANAGER
Mr. White has 12 years of investment management experience. Prior to joining
Mentor Advisors, he served for five years as portfolio manager with Capitoline
Investment Services. He has his undergraduate degree in business from the
University of Richmond.
GREGORY S. KAPLAN -- ASSOCIATE VICE PRESIDENT, PORTFOLIO MANAGER
Mr. Kaplan brings over 6 years of analytical and investment experience to
Mentor. Prior to joining the firm, Mr. Kaplan served for four years as a credit
specialist analyzing commercial credit for NationsBank. He began his career in
the Investment Services division of Prudential Insurance. Mr. Kaplan is a
graduate of Rutgers University and earned his MBS from the Pamplin College of
Business at Virginia Polytechnic Institute and State University.
MENTOR PERPETUAL ADVISORS, LLC
MARTIN ARBIB -- CHAIRMAN, PERPETUAL PORTFOLIO MANAGEMENT
Mr. Arbib is chairman and founder of Perpetual, a partner in the Mentor
Perpetual Advisors joint venture, where he currently leads investment
management. A chartered Accountant, he has 22 years' investment management
experience.
BOB YERBURY -- CHIEF INVESTMENT OFFICER
Mr. Yerbury has 24 years' investment management experience, with over 21 years'
experience in North American stock markets, and has been part of the Perpetual
team for 13 years. Before joining Perpetual, he was a portfolio manager with
Equity & Law Assurance Company. Mr. Yerbury is a graduate of Cambridge
University.
STEPHEN WHITTAKER -- UK TEAM LEADER
Mr. Whittaker joined Perpetual eight years ago and has 16 years' investment
management experience. Prior to joining Perpetual, he was responsible for UK
equity funds for the Save & Prosper Group. He began his fund management career
with Rowe & Pitman after graduation from Manchester University.
MARGARET RODDAN -- EUROPE TEAM LEADER
Ms. Roddan has 11 years of investment management experience, three years with
Perpetual. She joined Perpetual from Mercury Asset Management, where she shared
responsibility for management of continental European equity holdings. She began
her career with the National Provident Institution. Ms. Roddan is a graduate of
the Investment Management Program at the London Business School. She studied
finance at City University and is a graduate of Bristol University.
SCOTT MCGLASHAN -- FAR EAST TEAM LEADER
Mr. McGlashan has 19 years' management experience, 13 years specializing in the
Far East, and 11 years' tenure at Perpetual. He is a graduate of Yale and
Cambridge University.
41
<PAGE>
KATHRYN LANGRIDGE -- SOUTHEAST ASIA TEAM LEADER
Ms. Langridge shares responsibility with Mr. McGlashan for Far East equity
investments. Before joining Perpetual in 1990, she spent eight years in Hong
Kong with the investment firm of Jardine Fleming. She specializes in equity
investments in the non-Japanese stock markets of the Far East. Ms. Langridge is
a graduate of Cambridge University.
IAN BRADY -- AMERICAN TEAM LEADER
Mr. Brady is head of the North American team at Perpetual. He has 12 years'
investment management experience. Before joining Perpetual in 1997, he worked
for Britannia Investment Management, Legal & General and Standard Life. He is a
graduate of Aberdeen and Strathclyde Universities.
42
<PAGE>
APPENDIX
MOODY'S INVESTORS SERVICE, INC., BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations, (I.E., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principle
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
STANDARD AND POOR'S RATINGS SERVICE, INC., BOND RATINGS
AAA -- An obligation rated AAA has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet it financial commitment on the
bligation is extremely strong.
AA -- An obligation rated AA differs from the highest-rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is very strong.
43
<PAGE>
A -- An obligation rated A is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB -- An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
Obligations rated BB, B, CCC, CC and C are regarded as having significant
speculative characteristics. BB indicates the lowest degree of speculation and C
the highest. While such obligations will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B -- An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to meet its
financial commitment on the obligations. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
CCC -- An obligation rated CCC is currently vulnerable to nonpayment, and
is dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC -- An obligation rated CC is currently highly vulnerable to nonpayment.
C -- The C rating may be used to cover a situation where a bankruptcy
petition has been filed, or similar action has been taken, but payments on this
obligation are being continued.
D -- An obligation rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition, or the taking of a
similar action if payments on an obligtion are jeopardized.
MOODY'S NOTE RATINGS
MIG1/VMIG1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.
MIG2/VMIG2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
44
<PAGE>
STANDARD AND POOR'S NOTE RATINGS
SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess overwhelming safety characteristics are given a plus sign (+)
designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. Prime-1 repayment ability
will often be evidenced by the following characteristics:
-- Leading market positions in well established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) ahve a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above to a lesser degree.
Earnings trends and coverage ratios,, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1 -- This highest category indicateds that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designationis
satisfactory. However, the relative degree of saety is not as high as for issues
designated A-1.
A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
45
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)
(1) - Agreement and Declaration of Trust.1 (2) - Amendment to Agreement
and Declaration of Trust.4
(b) - Bylaws.1
(c)
(1) - Form of certificate representing shares of beneficial
interest for each of the Portfolios.1
(2) - Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights.1
(3) - Portions of Bylaws Relating to Shareholders' Rights.1
(d)
(1) - Form of Management Contract (Fixed-Income,
U.S. Government Cash Management Portfolio).14
(2) - Form of Management Contract (SNAP Fund).13
(3) - Form of Management Contract (International Portfolio). 14
(e) (1) - Form of Distribution Agreement.14
-1-
<PAGE>
(f) - Inapplicable.
(g)
(1) - Form of Custody Agreement.1 (2) - Form of Custody Agreement (SNAP
Fund).5 (3) - Form of Transfer Agency and Services Agreement.3
(4) - Form of Transfer Agency and Services Agreement (SNAP Fund).5
(h) (1) - Form of Administration Agreement.14 (2) - Form of Shareholder
Service Plan.14
(i) - Opinion of counsel, including consent.3
(j) (1) - Consent of Independent Accountants (SNAP Fund).13 (2) - Consent
of Independent Accountants.15
(k) - Inapplicable.
(l) - Inapplicable.
(m) - Form of Plan of Distribution pursuant to Rule 12b-1
(International Portfolio).12
(n) (1) Financial Data Schedule -- Mentor U.S. Government Cash
Management Portfolio 15
(2) Financial Data Schedule -- Mentor Fixed-Income Portfolio 15
(3) Financial Data Schedule -- Mentor Perpetual International
Portfolio -- Class A 15
(4) Financial Data Schedule -- Mentor Perpetual International
Portfolio -- Class B 15
(5) Financial Data Schedule -- Mentor Perpetual International
Portfolio -- Institutional Class 15
(6) Financial Data Schedule -- SNAP Fund.13
(o) - Form of Rule 18f-3 Plan.9
(p) Power of Attorney.14
1 Incorporated herein by reference to the Registrant's initial
Registration Statement on Form N-1A under the Investment Company Act of
1940 filed on April 15, 1994.
2 Incorporated herein by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form N-1A filed on June 28, 1994.
3 Incorporated herein by reference to Amendment No. 2 to the Registrant's
Registration Statement on Form N-1A filed on November 18, 1994.
4 Incorporated herein by reference to Amendment No. 4 to the Registrant's
Registration Statement on Form N-1A filed on July 3, 1995.
5 Incorporated herein by reference to Amendment No. 5 to the Registrant's
Registration Statement on Form N-1A filed on July 24, 1995.
6 Incorporated herein by reference to Amendment No. 6 to the Registrant's
Registration Statement on Form N-1A filed on September 5, 1995.
7 Incorporated herein by reference to Amendment No. 8 to the Registrant's
Registration Statement on Form N-1A filed on March 11, 1996.
8 Incorporated herein by reference to Amendment No. 9 to Registrant's
Registration Statement on Form N-1A filed on May 24, 1996.
9 Incorporated herein by reference to Amendment No. 10 to Registrant's
Registration Statement on Form N-1A filed on July 3, 1996.
10 Incorporated by reference to Amendment No. 12 to Registrant's
Registration Statement on Form N1-A filed on January 2, 1997.
11 Incorporated berein by reference to Amendment No. 13 to Registrant's
Registration Statement on Form N-1A filed on October 10, 1997.
12 Incorporated herein by reference to Amendment No. 14 to Registrant's
Registration Statement on Form N-1A filed January 30, 1998.
13 Incorporated herein by reference to Amendment No. 15. to Registrant's
Registration Statement on Form N-1A filed filed October 30, 1998.
14 Incorporated herein by reference to Amendment No. 16 to Registrant's
Registration Statement on Form N-1A filed on December 31, 1998.
15 Filed herewith.
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
-2-
<PAGE>
Item 25. Indemnification
The information required by this item is incorporated herein by reference
from the Registrant's Initial Registration Statement on Form N-1A under the
Investment Company Act of 1940 (File No. 811-8484).
Item 26. Business and Other Connections of Investment Adviser
(a) The following is additional information with respect to the directors and
officers of Mentor Investment Advisors, LLC:
<TABLE>
<CAPTION>
BUSINESS, PROFESSION,
POSITION WITH VOCATION OR EMPLOYMENT
NAME INVESTMENT ADVISER DURING THE PAST TWO FISCAL YEARS
<S> <C> <C>
John G. Davenport Managing Director Managing Director,
Mentor Investment
Group, LLC.
R. Preston Nuttall Managing Director Managing Director,
Mentor Investment
Group, LLC.
Paul F. Costello Managing Director Managing Director,
Mentor Investment Group,
LLC; President, Mentor
Funds, Mentor
Institutional Trust, Cash
Resource Trust, Mentor
Income Fund, Inc.; and
America's Utility Fund,
Inc.; Senior Vice
President, Mentor
Distributors, LLC;
Managing Director, Mentor
Perpetual Advisors, LLC.
Theodore W. Price Managing Director Managing Director,
Mentor Investment
Group, LLC.
P. Michael Jones Managing Director Managing Director,
Mentor Investment
Group, LLC.
Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.
-3-
<PAGE>
Daniel J. Ludeman Chairman Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC.
Karen H. Wimbish Managing Director Managing Director,
Mentor Investment
Group, LLC.
Terry L. Perkins Treasurer and Senior Vice President,
Secretary Mentor Investment Group,
L.L.C.
Michael A. Wade Controller Vice President, Mentor
Investment Group, L.L.C.
</TABLE>
<PAGE>
(b) The following is additional information with respect to Mentor
Perpetual Advisors, LLC, the investment adviser to the Mentor Perpetual
International Portfolio:
<TABLE>
Other Substantial
Position with the Business, Profession,
Name Investment Advisor Vocation or Employment
<S> <C> <C>
Scott A. McGlashan President Director, Perpetual
Portfolio Management
Limited.
Martyn Arbib Managing Director Chairman, Perpetual
Portfolio Management
Limited.
Roger C. Cormick Managing Director Deputy Chairman -
Marketing, Perpetual
Portfolio Management
Limited.
Paul F. Costello Managing Director Managing Director, Mentor
Investment Group, LLC
and Mentor Investment
Advisors, LLC; President,
Mentor Funds, Mentor
Institutional
Trust, Cash Resource
Trust, Mentor Income
Fund, Inc., and America's
Utility Fund, Inc.;
Senior Vice President,
Mentor Distributors, LLC.
Daniel J. Ludeman Managing Director Chairman and Chief
Executive Officer,
Mentor Investment
Group, LLC; Director,
Wheat First Securities,
Inc.; Managing Director,
Wheat First Butcher
Singer, Inc.
David S. Mossop Managing Director Director, Perpetual
Portfolio Management
Limited
Peter J. Quinn, Jr. Managing Director Managing Director,
Mentor Investment
Group, LLC.
Roderick A. Smyth Managing Director Managing Director,
Mentor Investment
Group, LLC.
* The address of Mentor Investment Group, LLC, Wheat, First Securities, Inc.,
Wheat First Butcher Singer, Inc., Mentor Funds, Mentor Income Fund, Inc., Mentor
Investment Advisors, LLC, and Mentor Perpetual Advisors, LLC is 901 East Byrd
Street, Richmond, VA 23219. The address of Ryland Capital Management, Inc. and
RAC Income Fund, Inc. is 11000 Broken Land Parkway, Columbia, MD 21044. The
address of Perpetual Portfolio Management Limited is 48 Hart Street,
Henley-on-Thames, Oxon, England, RG92AZ.
</TABLE>
-6-
<PAGE>
Item 27. Principal Underwriters
(a) Mentor Distributors, LLC, the Fund's principal underwriter, acts as
principal underwriter for the following investment companies:
The Mentor Funds
o Mentor Growth Portfolio
o Mentor Short-Duration Income Portfolio o Mentor Balanced
Portfolio o Mentor Capital Growth Portfolio o Mentor Perpetual
Global Portfolio o Mentor High Income Portfolio o Mentor Income and
Growth Portfolio o Mentor Quality Income Portfolio o Mentor
Municipal Income Portfolio o Mentor U.S. Government Money Market
Portfolio o Mentor Money Market Portfolio o Mentor Tax-Exempt Money
Market Portfolio
Cash Resource Trust
o Cash Resource Money Market Fund
o Cash Resource U.S. Government Money Market Fund
o Cash Resource Tax-Exempt Money Market Fund
o Cash Resource California Tax-Exempt Money Market Fund
o Cash Resource New York Tax-Exempt Money Market Fund
Mentor Institutional Trust
o Mentor U.S. Government Cash Management Portfolio
o Mentor Fixed-Income Portfolio
o Mentor Perpetual International Portfolio
Mentor Investment Group
o Mentor Income Fund
o America's Utility Fund
Mentor Variable Investment Portfolios o Mentor VIP Growth Portfolio o
Mentor VIP Strategy Portfolio o Mentor VIP Balanced Portfolio o
Mentor VIP Capital Growth Portfolio o Mentor VIP Perpetual
International Portfolio
(b) Information concerning officers of Mentor Distributors, LLC:
-10-
Name And Principal Positions And Offices Positions And Offices
Business Address* With Underwriter With Registrant
- ----------------- -------------------- ---------------------
Lynn Mangum Chairman Inapplicable
D'Ray Moore President Inapplicable
Dennis Sheehan Executive Vice President Inapplicable
William J. Tomko Senior Vice President Inapplicable
Mark J. Rybarczyk Senior Vice President Inapplicable
Kevin J. Dell Vice President and Inapplicable
Secretary
Michael D. Burns Vice President Inapplicable
David Blackmore Vice President Inapplicable
Robert L. Tuch Assistant Secretary Inapplicable
Steven Ludwig Compliance Officer Inapplicable
*Principal Address for all Officers:
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219-8000
(c) Inapplicable.
Item 28. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and
other documents required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules promulgated thereunder are Registrant's
Secretary, Geoffrey B. Sale, Registrant's custodians, Investors Fiduciary Trust
Company ("IFTC") (all Portfolios other than SNAP Fund), and Wachovia Bank (SNAP
Fund only), and Registrant's transfer agents, State Street Bank and Trust
Company (through Boston Financial Data Services, Inc. ("BFDS")) (all Portfolios
other than SNAP Fund), and Wachovia
-7-
<PAGE>
Bank (SNAP Fund only). The address of the Secretary is 901 East Byrd Street,
Richmond, Virginia, 23219. The address of BFDS is 2 Heritage Drive, North
Quincy, Massachusetts 02171. The address of IFTC is 127 West 10th Street, Kansas
City, Missouri, 64105. The address of Wachovia Bank is 1021 East Cary Street,
P.O. Box 27602, Richmond, Virginia 23261.
Item 29. Management Services
None.
Item 30. Undertakings
(a) The Registrant undertakes to furnish to each person to whom a prospectus of
the Registrant is delivered a copy of the Registrant's latest annual report
to shareholders, upon request are without change.
(b) The undersigned Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting on the removal of a trustee or
trustees when requested in writing to do so by the holders of at least 10%
of the Registrant's outstanding voting securities and in connection with
such meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
NOTICE
A copy of the Agreement and Declaration of Trust of Mentor
Institutional Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually and that the obligations of or arising out of this instrument are
not binding upon any of the Trustees, officers, or shareholders individually but
are binding only upon the assets and property of the Registrant.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Amendment to its Registrant
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Amendment to the Registration Statement to be signed on behalf of
the undersigned, thereunto duly authorized, in the City of Richmond, and the
Commonwealth of Virginia on this 26th day of February, 1999.
MENTOR INSTITUTIONAL TRUST
By: /s/ PAUL F. COSTELLO
Paul F. Costello
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*
- - -------------------------------- Trustee February 26, 1999
Arnold H. Dreyfuss
*
- - -------------------------------- Trustee February 26, 1999
Thomas F. Keller
* Trustee February 26, 1999
- - --------------------------------
Daniel J. Ludeman
* Trustee February 26, 1999
- - --------------------------------
Louis W. Moelchert, Jr.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
* Trustee February 26, 1999
- - ---------------------------------
Troy A. Peery, Jr.
* Trustee February 26, 1999
- - ---------------------------------
Peter J. Quinn, Jr.
* Trustee February 26, 1999
- - ---------------------------------
Arch T. Allen, III
February 26, 1999
* Trustee
- - ---------------------------------
Weston E. Edwards
* Trustee February 26, 1999
- -----------------------------------
Jerry R. Barrentine
February 26, 1999
* Trustee
- -----------------------------------
J. Garnett Nelson
/s/ PAUL F. COSTELLO President February 26, 1999
- -----------------------------
Paul F. Costello (Principal Executive Officer)
/s/ TERRY L. PERKINS Treasurer February 26, 1999
- ----------------------------
Terry L. Perkins (Principal Financial and
Accounting Officer)
*By /s/ PAUL F. COSTELLO February 26, 1999
----------------------
Paul F. Costello
Attorney-in-Fact
</TABLE>
-10-
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(11) Consent of Independent Accountants
(17)(a) Financial Data Schedule -- Mentor U.S. Government Cash
Management Portfolio
(17)(b) Financial Data Schedule -- Mentor Fixed Income Portfolio
(17)(c) Financial Data Schedule -- Mentor Perpetual International
Portfolio -- Class A
(17)(d) Financial Data Schedule -- Mentor Perpetual International
Portfolio -- Class B
(17)(e) Financial Data Schedule -- Mentor Perpetual International
Portfolio -- Class E
(17)(f) Financial Data Schedule -- Mentor Perpetual International
Portfolio -- Institutional Class
</TABLE>
-11-
CONSENT OF INDEPENDENT ACCOUNTANTS
The Trustees
Mentor Institutional Trust
We consent to the use of our report dated December 18, 1998, incorporated
herein by reference and to the references to our firm under the captions
"FINANCIAL HIGHLIGHTS" in the prospectuses and "INDEPENDENT ACCOUNTANTS"
and Financial Statements in the statement of additional information.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
March 1, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> MENTOR U.S. GOVT. CASH MGMT PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 64,811
<INVESTMENTS-AT-VALUE> 64,811
<RECEIVABLES> 290
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8
<TOTAL-ASSETS> 65,109
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 282
<TOTAL-LIABILITIES> 282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,827
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 64,827
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 64,827
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,834
<OTHER-INCOME> 0
<EXPENSES-NET> 117
<NET-INVESTMENT-INCOME> 10,717
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,717
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,717
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 331,400
<NUMBER-OF-SHARES-REDEEMED> 537,987
<SHARES-REINVESTED> 11,464
<NET-CHANGE-IN-ASSETS> (195,123)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 235
<AVERAGE-NET-ASSETS> 195,464
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> MENTOR FIXED INCOME PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 81,297
<INVESTMENTS-AT-VALUE> 82,736
<RECEIVABLES> 1,102
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 18,338
<TOTAL-ASSETS> 102,176
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,804
<TOTAL-LIABILITIES> 18,804
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,970
<SHARES-COMMON-STOCK> 6,342
<SHARES-COMMON-PRIOR> 5,258
<ACCUMULATED-NII-CURRENT> 270
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 694
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,439
<NET-ASSETS> 83,372
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,392
<OTHER-INCOME> 0
<EXPENSES-NET> 71
<NET-INVESTMENT-INCOME> 4,321
<REALIZED-GAINS-CURRENT> 774
<APPREC-INCREASE-CURRENT> (60)
<NET-CHANGE-FROM-OPS> 5,035
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,375
<DISTRIBUTIONS-OF-GAINS> 285
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,822
<NUMBER-OF-SHARES-REDEEMED> 521
<SHARES-REINVESTED> 332
<NET-CHANGE-IN-ASSETS> 21,634
<ACCUMULATED-NII-PRIOR> 324
<ACCUMULATED-GAINS-PRIOR> 205
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 73
<AVERAGE-NET-ASSETS> 71,029
<PER-SHARE-NAV-BEGIN> 13.11
<PER-SHARE-NII> 0.79
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> 0.82
<PER-SHARE-DISTRIBUTIONS> 0.06
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.15
<EXPENSE-RATIO> .010
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> MENTOR PERPETUAL INTL. PORTFOLIO CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 113,524
<INVESTMENTS-AT-VALUE> 116,156
<RECEIVABLES> 4,046
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,021
<TOTAL-ASSETS> 130,223
<PAYABLE-FOR-SECURITIES> 1,443
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,457
<TOTAL-LIABILITIES> 11,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,499
<SHARES-COMMON-STOCK> 4,284
<SHARES-COMMON-PRIOR> 2,972
<ACCUMULATED-NII-CURRENT> 53
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (776)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,598
<NET-ASSETS> 118,322
<DIVIDEND-INCOME> 1,888
<INTEREST-INCOME> 413
<OTHER-INCOME> 0
<EXPENSES-NET> 1,541
<NET-INVESTMENT-INCOME> 760
<REALIZED-GAINS-CURRENT> (1,409)
<APPREC-INCREASE-CURRENT> 4,182
<NET-CHANGE-FROM-OPS> 3,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 72
<DISTRIBUTIONS-OF-GAINS> 92
<DISTRIBUTIONS-OTHER> 594
<NUMBER-OF-SHARES-SOLD> 2,714
<NUMBER-OF-SHARES-REDEEMED> 883
<SHARES-REINVESTED> 51
<NET-CHANGE-IN-ASSETS> 49,628
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> 215
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 983
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,860
<AVERAGE-NET-ASSETS> 47,482
<PER-SHARE-NAV-BEGIN> 13.83
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 0.91
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.14
<PER-SHARE-NAV-END> 14.65
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> MENTOR PERP INTERNATIONAL PORT.-CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 113,524
<INVESTMENTS-AT-VALUE> 116,156
<RECEIVABLES> 4,046
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,021
<TOTAL-ASSETS> 130,223
<PAYABLE-FOR-SECURITIES> 1,443
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,457
<TOTAL-LIABILITIES> 11,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,499
<SHARES-COMMON-STOCK> 2,916
<SHARES-COMMON-PRIOR> 2,235
<ACCUMULATED-NII-CURRENT> 53
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (776)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,598
<NET-ASSETS> 118,322
<DIVIDEND-INCOME> 1,888
<INTEREST-INCOME> 413
<OTHER-INCOME> 0
<EXPENSES-NET> 1,541
<NET-INVESTMENT-INCOME> 760
<REALIZED-GAINS-CURRENT> (1,409)
<APPREC-INCREASE-CURRENT> 4,182
<NET-CHANGE-FROM-OPS> 3,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 53
<DISTRIBUTIONS-OF-GAINS> 54
<DISTRIBUTIONS-OTHER> 405
<NUMBER-OF-SHARES-SOLD> 1,860
<NUMBER-OF-SHARES-REDEEMED> 380
<SHARES-REINVESTED> 34
<NET-CHANGE-IN-ASSETS> 49,628
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> 215
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 983
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,860
<AVERAGE-NET-ASSETS> 32,610
<PER-SHARE-NAV-BEGIN> 13.81
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.88
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.14
<PER-SHARE-NAV-END> 14.52
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> MENTOR PERPETUAL INTERNL. PORTFOLIO-CLASS E
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 113,524
<INVESTMENTS-AT-VALUE> 116,156
<RECEIVABLES> 4,046
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,021
<TOTAL-ASSETS> 130,223
<PAYABLE-FOR-SECURITIES> 1,443
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,457
<TOTAL-LIABILITIES> 11,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,499
<SHARES-COMMON-STOCK> 150
<SHARES-COMMON-PRIOR> 148
<ACCUMULATED-NII-CURRENT> 53
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (776)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,598
<NET-ASSETS> 118,322
<DIVIDEND-INCOME> 1,888
<INTEREST-INCOME> 413
<OTHER-INCOME> 0
<EXPENSES-NET> 1,541
<NET-INVESTMENT-INCOME> 760
<REALIZED-GAINS-CURRENT> (1,409)
<APPREC-INCREASE-CURRENT> 4,182
<NET-CHANGE-FROM-OPS> 3,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 19
<NUMBER-OF-SHARES-SOLD> 148
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 49,628
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> 215
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 983
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,860
<AVERAGE-NET-ASSETS> 16,998
<PER-SHARE-NAV-BEGIN> 13.53
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 1.15
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.13
<PER-SHARE-NAV-END> 14.72
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> MENTOR PERPETUAL INTERNL PORTFOLIO-CLASS INST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 113,524
<INVESTMENTS-AT-VALUE> 116,156
<RECEIVABLES> 4,046
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,021
<TOTAL-ASSETS> 130,223
<PAYABLE-FOR-SECURITIES> 1,443
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,457
<TOTAL-LIABILITIES> 11,900
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 116,499
<SHARES-COMMON-STOCK> 745
<SHARES-COMMON-PRIOR> 1,165
<ACCUMULATED-NII-CURRENT> 53
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (776)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,598
<NET-ASSETS> 118,322
<DIVIDEND-INCOME> 1,888
<INTEREST-INCOME> 413
<OTHER-INCOME> 0
<EXPENSES-NET> 1,541
<NET-INVESTMENT-INCOME> 760
<REALIZED-GAINS-CURRENT> (1,409)
<APPREC-INCREASE-CURRENT> 4,182
<NET-CHANGE-FROM-OPS> 3,533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26
<DISTRIBUTIONS-OF-GAINS> 51
<DISTRIBUTIONS-OTHER> 103
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 427
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 49,628
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> 215
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 983
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,860
<AVERAGE-NET-ASSETS> 2,257
<PER-SHARE-NAV-BEGIN> 13.89
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 0.79
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.05
<RETURNS-OF-CAPITAL> 0.14
<PER-SHARE-NAV-END> 14.74
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>